Exactly one year since the country witnessed one of the worst fuel shortages in recent times, another crisis is looming with major dealers already rationing products.
Oil Marketing Companies (OMCs) are demanding about Sh55 billion from the government’s fuel subsidy programmes even as the dollar shortage chocks imports.
The pending bills from the petrol price stabilisation mechanism (fuel subsidy) are from three supply cycles, insiders in the industry told the Star yesterday.
This, they say, has put pressure on the major OMCs who are also struggling to secure the much needed US dollar currency to import products.
“Delays in government subsidy refunds and margins are a major concerns. Players have been borrowing heavily and the situation has been worsened by the dollar issue,” a source familiar with concerns by the Supply Coordination Committee (SupplyCor), told the Star.
SupplyCor is the umbrella body for oil marketing companies in Kenya, which coordinates activities along the fuel supply chain.
While a major shortage is yet to be reported in the country, the big players who import bulk and sale to small players in wholesale arrangements are said to be rationing products.
“This is an artificial shortage. The system has fuel that is [in] pipeline and storage. However, new imports are having trouble coming in due to the shortage on dollars to pay for the cargoes,” Petroleum Outlets Association of Kenya (POAK) national coordinator, John Njogu, told the Star.
It could be a prudential move by OMCs to ration as they don’t have sufficient stock cover,” Njogu added, warning the market could see a “disappearing of the wholesale market.”
The Kenya Independent Petroleum Distributors Association (KIPEDA) yesterday said small players are struggling to access wholesale fuel, as major OMCs are demanding payments in dollars, which are scarce.
“We are scavenging for products,” KIPEDA chairman Joseph Karanja told the Star on telephone.
The reduced imports, blamed on the dollar shortage, are evidenced by the number of vessels calling at the Port of Mombasa, which have reduced to about one in every two weeks, from at least two.
Only one oil tanker –MELODY, is expected in Mombasa in the next 14 days, Kenya Ports Authority vessel booking data shows. The vessel departed the Port d'Ehoala in southern Madagascar on Saturday.
Normally, Kenya receives about six vessels or more in a 45-day period.
The country has struggled with falling forex reserves which were recorded at $6.6 billion (Sh 848.7 billion) in the week that ended March 3–Central Bank of Kenya data.
The reserves were at $6.96 million (895.9 billion) a month earlier, which was a drop from $7.38 million (Sh949.2 billion) as at January 5.
OMCs are also said to be rattled by the government’s decision to move away from the Open Tender System (OTS), which has been used to import products since 2015.
Under the system, the about 112 licensed major companies operating in the country have been bidding to import oil products on a monthly basis, where one winning player would bring in products on behalf of the entire market.
The new government-to-government plan is targeted at state-owned Gulf companies, in what is seen as fruition from recent back-to-back meetings by Investments, Trade and Industry CS Moses Kuria in the Middle East.
The company that wins the tender will chose one OMC to supply, who will in turn distribute to other players.
There are also plans to have State-owned National Oil of Kenya allowed to import 30 per cent of the refined petroleum products.
The local players are said to be opposed to the planned move, which has seen some of them resort to a go-slow.
As of yesterday noon, a number of petrol stations in the city had started witnessing long queues amid panic buying by motorists.
Continued rationing could see the country witness another crisis similar to March last year, when OMCs resorted to hoarding products in protest of delayed compensation.
While President William Ruto’s government resorted to removing subsidy on petroleum products, noting it was unsustainable, it is yet to be fully effected going by the recent review.
“The price of diesel has been cross subsidised with that of Super Petrol while a subsidy of Sh19.41 per litre has been maintained for kerosene in order to cushion consumers from the otherwise high prices,” EPRA director general Daniel Kiptoo said in a statement on February 14.
The government will utilise the Petroleum Development Levy to compensate oil marketing companies for the difference in cost, Kiptoo said, as the regulator retained pump prices at Sh177.30 for petrol, Sh162 for diesel and Sh145.94 for Kerosene, in Nairobi.
If OMCs sustain the rationing, it is likely to hit hard rural parts of the country where independent producers are dominant.
There are about 1,200 licensed independent dealers countrywide accounting for about 45 per cent of products sold in the entire market.
They sell between 1.5 million and 2 million litres of fuel products consumed in Nairobi daily.