Independent petrol dealers hit by controls

The price control regime slapped on petroleum products has allegedly precipitated a wave of closures among independent fuel retailing stations, due to profit margin erosion amid high operating costs.

The independent margin on a litre of petrol dropped to Sh1.40 after 60 cents which is the road tanker delivery rate allowed in Nairobi, is deducted, before salaries and other overheads are considered.

According to the Kenya Independent Petroleum Dealers Association (Kipeda), job losses are imminent and retailers who borrowed money but are unable repay due to the high overheads, face foreclosures from banks.

The setting up of a maximum retail cost for petrol at Sh94.03 in Nairobi from December 15, 2010, led to the wholesale price of the fuel brand shooting up to Sh92 in depots, while diesel rose to Sh84.50 from Sh76.50 a litre.

The new control regime has changed the previous structure where fuel prices were cheaper in western Kenya than in Nairobi where demand is higher because of its many economic activities.

Mr Yasin Haji Hussein, who operates Lunar Service Station in Ongata Rongai, is already contemplating on reducing the number of his employees.

Mr Yasin said unavailability of petroleum products, especially the super brand of petrol in wholesale markets had made replenishing stocks very difficult, while margins are low resulting in huge losses.

“The move to control prices was not well thought-out as it is killing the spirit of entrepreneurship, innovation and competition which previously led to motorists enjoying efficient services in many retailing outlets,” he said.

Independents dealers previously posted lower prices than outlets owned by multinationals. Free provision of air pressure and wiping of winds screens using detergents are add-ons offered to motorists which are likely to cease.

The Energy (Petroleum Pricing) Regulations 2010 signed by Energy Minister Kiraitu Murungi were issued as Legal Notice Number 196 and published in the Kenya Gazette Supplement of December 3, 2010.

“Price control has a two-fold aim of protecting consumers and ensuring that industry players recover prudently accrued costs and make reasonable margins,” said Mr Murungi.

Petrol’s maximum price in Nairobi is Sh94.03, diesel Sh87.45. and kerosene Sh75.83. A dealer selling fuel above price set by Energy Regulatory Commission (ERC) risks a fine of Sh1 million, withdrawal of licence or both.

Mr Vanesio Kariuki, who operates Millennium Star Service Station on Kamiti road, said price regulation was ill conceived as problems affecting the supply chain had not addressed by Government to make fuel more affordable.has to act quickly,” he said.