Fuel dealers fear impending supply crisis

Oil marketing firms are protesting a decision to increase fuel allocation to the National Oil Corporation of Kenya saying this will lead to a fuel crisis.

In a letter to Energy and Petroleum cabinet secretary Davis Chirchir the dealers said increasing ullage (fuel holding space) for National Oil would leave most companies with lean stocks.

This will lead to fuel shortage, the letter said. It was signed by Mr David Ohana, chairman of the Oil Industry Supply Co-ordination Committee.

FULLY RELIANT

“Please note that the country’s oil supply is fully reliant on the Kenya Pipeline Corporation system since Kenya Petroleum Refineries stopped refining.

Any deviation from the current ullage allocation formula in favour of (National Oil) will easily lead the country into a supply crisis,” read the letter of April 14.

The current allocation formula is based on the volume of sales for each oil marketer.

Last month, Mr Chirchir wrote to Kenya Pipeline directing that National Oil Corporation be allocated 7,500 tonnes as ullage for super petrol. Kenya Pipeline was also ordered to increase National Oil’s allocation for diesel and Jet A-1 to at least 20 per cent of the total ullage.

“As you are aware, this ministry has been looking into ways of empowering National Oil to ensure that it is a market leader in supply, marketing and distribution of petroleum products.

FUEL PRICE DETERMINATION

‘‘However, National oil continues to struggle accessing petroleum products to the extent that they buy in-tank from other companies within the Kenya Pipeline system.

‘‘This is, therefore, to ask you to allocate National Oil at least 20 per cent of the total local ullage for AGO and Jet A-1to enable them meet their role as a stabilizer of petroleum product prices,” reads the letter.

Determination of fuel prices is currently done by the Energy Regulatory Commission every month. By “empowering” National Oil, the ministry could shift this responsibility from the regulator to market forces.

According to insiders within the energy industry, National Oil does not have the capacity to distribute all the fuel allocated to it under the new arrangement.

This risks clogging Kenya Pipeline system which might lead to a supply crisis. There are also fears that “excessive” fuel allocation to National Oil will encourage in-tank selling of fuel by the company, contrary to its mandate of stabilising prices.