Sale of adulterated fuel proves black market still thriving

Sunday March 27 2016

A fuel pump at a petrol station. Oil prices have been dropping globally prompting gas companies to warm up to mergers and acquisitions. PHOTO | AFP

A fuel pump at a petrol station. PHOTO | AFP 

By VINCENT ACHUKA
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The recent cancellation of licences belonging to petrol stations found selling adulterated fuel has raised questions on the government’s ability to effectively to crush the black market petroleum industry.

The government insists that the crackdown had paid off because 96 per cent of the 1,493 outlets inspected between September 2015 and last month were found clean.

However, the fact that dozens of petrol stations were found selling adulterated or fuel meant for export each time the Energy Regulatory Commission (ERC) carries out such tests could be an indicator of a thriving black market industry previously thought to be played by small time independent distributors.

Last week, Vivo Energy, which sells Shell branded products, threatened to sue the ERC for naming it alongside the dealers found to have mixed diesel with kerosene for higher profits.

Its Valley Road, Wundanyi and Gatundu outlets were named in the list which also included Oil Libya and Hashi petroleum.

Vivo argues it is wrong for the regulator to shame the marketers in newspaper notices since it had already slapped them with fines.

Some of the 56 petrol stations, which were found guilty were slapped with fines ranging from Sh100,000 to Sh1.5 million and allowed to reopen.

COST TO MOTORISTS

Motorists, however, say the punishments are too lenient and have demanded that the outlets found selling adulterated fuel be closed for good.

“This shows how much they disregard consumers because it is so easy for a petrol station to pay Sh200,000 or even a million shillings considering the illicit profits they make,” Peter Murima, the Motorists Association of Kenya chairman told the Sunday Nation.

“The big question is who is going to compensate the motorists whose vehicles have been damaged from using adulterated fuel,” he says.

Oil marketers are supposed to test fuel delivered to their outlets for contamination using fuel testing kits.

The kits that goes for Sh1,276 can only be used once to determine whether the petroleum product has been mixed with kerosene.

The kits were introduced in the country in September last year, a move ERC said at that time would eliminate the sale of adulterated fuel.

“Before then, officers from the ERC had to go round to check if products are good or bad by measuring density. We are not at 100 per cent compliance level but as you can see, we are making progress,” Edward Kinyua, the acting director of petroleum at ERC argues.

“But unless the price of kerosene is brought to a level almost similar to petrol and diesel it would be difficult to completely eliminate fuel adulteration,” he says.

HOW LOW KEROSENE PRICES DRIVE ADULTERATION

Kerosene does not attract any excise duty; only Sh0.45 is levied per litre which comprises of the petroleum regulation levy and petroleum development levy. 

The excise duty came into effect in December resulting in a Sh2.06 rise in duty on diesel to Sh10.30 per litre while maintaining the charge on petrol at Sh19.89 per litre.

Excise duty on kerosene was scrapped in 2011 by President Mwai Kibaki’s government. Because of the zero-rating of kerosene, its price has remained low.

A litre of petrol is Sh85.58 in Nairobi and diesel costs Sh65.70 while kerosene costs Sh42.15.

The regulator argues that introducing taxes on kerosene and compensating this increase by reducing the same on Liquefied Petroleum Gas (LPG) would make more Kenyans switch to the latter.

ERC data shows that about 1.2 billion litres of dual-purpose kerosene (DPK) is consumed in the country every year.

But the Petroleum Institute of East Africa (PIEA) says more than 80 per cent of kerosene is used to adulterate diesel and petrol.

Given this scenario Vivo Energy, which is currently having a public relations nightmare, stopped the sale of kerosene in all its outlets.

“Given that kerosene is the main component of adulteration in both super and diesel, Vivo Energy Kenya has with effect from midnight tonight stopped selling kerosene at all Shell Service Stations in order to minimise any chance of fuel adulteration,” it said in a statement on Tuesday last week.

While mixing small quantities of kerosene with petrol or diesel would not stop a vehicle from running, experts say it shortens the lifespan of the engine.

“The high levels of sulphur in kerosene compromises the conversion properties of engine pollutants on the catalysts, leading to engine deposit formation and engine knock,” says Neto Ombewa, a motoring expert and columnist.

“Kerosene mixed with petrol results in higher emissions because they do not form a uniform mixture, leading to incomplete combustion which increases engine wear, loss of power and dilution of engine oil,” he says.

He says that the increased emissions that result from using adulterated fuel is harmful not only to the environment but to the health of Kenyans, similar to the use of fuel meant for export.

Fuel meant for consumption in Kenya has far less lead and sulphur content and is of a different colour from the one the country exports.

This reduction in pollutants (ppm) began in 2012 as part of Kenya’s global commitment to reduce emissions in line with United Nations Environment Programme (UNEP).

However, this reduction in ppm has made fuel consumed locally costlier and because of this fuel meant for export is finding its way into the local market.