Major oil marketers protest over ‘dismal’ profit margins

File | NATION
A KenolKobil petrol station attendant adjusts prices on a billboard. Major oil marketers are up in arms over a small profit margin set by the Energy Regulatory Commission.

What you need to know:

  • The strategy is to force ERC to adjust retail price upwards

Big oil companies are creating an artificial shortage to protest the recent increments by the Energy Regulatory Commission which they term ‘dismal’, players in the industry have said.

Independent petroleum dealers who buy from larger marketers to supply the bulk of rural areas say the move is aimed at forcing the regulator to increase the profit margins.

“We receive about 12,000 litres every day, but we have only been receiving half the amount from Friday,” said an insider in the oil industry who requested anonymity.

“The large oil marketers are limiting supply so that they force the prices upwards. They were expecting at least Sh8 in increases by the ERC, but they were disappointed,” the source who buys oil from KenolKobil added.

On Friday, ERC raised retail prices by about Sh2.77 on average per litre across the country.

The delays and rationing come at a time when the country is faced with shortages of cooking gas and days after Kenya Power increased electricity prices thereby shaping a major energy crisis in the country.

However KenolKobil says the delays were caused by some logistical problems, which had since been resolved, according to the KenolKobil spokesperson.

The government in December last year introduced price caps that restricts oil dealers’ profit margins to Sh6 per litre at the wholesale level and Sh3 per litre at the retail outlets.

This arrangement has not sat well in the industry.

Slow down in profits

Total Kenya cited the price controls as one of the factors that have contributed to its projected slow down in profits when it issued a profit warning recently.

“Depressed margins due to the implementation of the price regulation mechanism in December 2010 omits and underestimates some costs in determination of the maximum retail prices and the period when they are recognised in the formula,” said Total Kenya’s management.

This means that the oil marketer would be charging much higher prices if the price controls were not in place.

Dealers from Western region have expressed their discontent over high wholesale fuel prices at the Kenya Pipeline Company depots.