Marketers warn of return to era of oil shortages

Local oil market operators are accusing the Ministry of Energy and Petroleum of running the industry according to the whims of some officials. 

In correspondence seen by Smart Company, the marketers are accusing ministry officials of ignoring the set rules, for instance, by giving a directive to the Energy Regulatory Commission (ERC) to allocate storage space at the national pipeline and distribution system against the law.   

“Chaotic ullage allocation is tantamount to economic sabotage,” a letter by one of the local oil marketers reads.

“Many petrol stations will run out of fuel in the next coming months if what is suggested in ullage share prevails.”

Under the storage rules, 70 per cent of oil stock imported through the open tender system and stored at Kipevu facilities must be for domestic consumption. The rest (30 per cent) would be reserved for transit consignments to neighbouring Uganda and Rwanda.

The new rules also demand that 60 per cent of domestic fuel ullage be shared among the marketers according to the market share each hold and the remaining portion be managed via the pipeline’s throughput system.

Ordinarily, fuel allocation is based on the rate of stock evacuation by companies, meaning faster picking up of petroleum products at KPC terminals would win a marketer bigger share of ullage.

However, in the allocation for next month, the reverse is true. Local operators risk running out of supplies in the April-May season.

The letters directing change of rules are written by Energy principal secretary Joseph Njoroge.

Among the firms to benefit are Eliora, Stabex International Ltd, Regnol, Tosha Petroleum Ltd, Tiban Oil Ltd, Bakri, Ranway, and East Africa Gasoil.

They are stockpiling petroleum in anticipation of a demand surge in the regional market. Eliora was licensed last November while Stabex got the green light in July.

Hass Energy and State-owned National Oil Corporation of Kenya are also on the list.

Fear of a looming fuel shortage is hinged on the fact that most of the new players have  no known — or limited — presence in the retail network.

But they have recently sought and been granted waivers by the ministry to enable them to service contracts in South Sudan, Rwanda, and the Democratic Republic of the Congo.

If they fail to evacuate the products allocated to them, there is a risk of clogging the pipeline storage and distribution system because of delays in picking up their oil stock in anticipation of brisk business in the months preceding the budget policy statement in mid-June.

“We have been taken aback and shocked at the ullage allocation on the basis of MOE&P letters and directives. Whatever happened to supply and/or PIEA input and steer with respect to ullage sharing?” the players complain in the letter to the ministry.

This was a common complaint during the term of the previous government of President Mwai Kibaki. Players are warning that a return to the bad old days could see the customer suffer due to shortage and huge fluctuation of retail prices.

CHAOTIC SITUATION

The letter was copied to the industry regulator, the Energy Regulatory Commission (ERC). 

In 2013, 16 new firms were licensed, bringing the total number of registered downstream players to 87. Their entry has amplified an already chaotic situation in the sector.

The oil marketers’ letter, which was also copied to ERC director for petroleum, Linus Gitonga, said 33,220 cubic metres (33.2 million litres) was allocated to newcomers in the pipeline’s throughput system between February and March this year.

This allocation piles pressure on the pipeline, slowing its hourly pumping rate to just 650,000 litres an hour.

KPC’s Mombasa-to-Nairobi line has a pumping capacity of 800 cubic metres an hour but monthly average pumping rates rarely exceed 650 cubic metres, slowing down evacuation of fuel.