The real causes of oil supply hiccups

• Product entry issues need to be addressed urgently to ensure adequacy, efficiency

Further, the government will need to quickly come up with crude oil and product supply systems with sufficient regulatory, legal and financial guarantees that protect both the importer and marketer from financial exposure, as is currently.

The open tender system as it is today is voluntary and only the importers willing to take risks will import, and this does not augur well for the country’s security of supply. The supply system should have sufficient legally enforceable penalties and guarantees.

When oil prices are on a downward trend, it is normal for importers to act cautiously and avoid overstocking so as not to be caught with expensive stocks to be sold at a loss, and this may have generally resulted in lower stocks in the system than is normal.

That is why the Ministry of Energy should ensure that legally required minimum stocks are maintained by all marketers.

Eventually, the government should implement the strategic stocks programme. Again, the government should think very carefully about the timing of the introduction of price controls at a time when the supply infrastructure is insufficient and inefficient, otherwise supply chain disruptions will not disappear.

In a price regulated environment importers and marketers will always behave like business entities and react to supply hiccups only to the extent defined by the prices fixed by the controller, and will avoid to go the extra mile if it results in losses. Unfortunately this is the difficult reality of a price-regulated environment.

Finally, with Uganda’s crude oil production and local refining tending toward reality, the Kenyan government should in future incorporate this development in every decision they make on petroleum infrastructure investment.

Mr Wachira is the General Manager, Petroleum Institute of East Africa