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Consumers shoulder burden of ‘lost’ fuel

Thursday December 19 2019
graphic

Unknown to many, oil dealers continue to enjoy free revenues milked from consumers under an arrangement that allows them to ‘lose’ millions of litres of fuel from their own storage facilities and claim compensation from the energy regulator. FILE PHOTO | NATION MEDIA GROUP

By EDWIN OKOTH

When the Kenya Pipeline Company declared massive losses of fuel passing through its systems, oil marketing companies came out with guns blazing.

The marketers protested the pipeline losses and branded it a scheme by the Kenya Pipeline Company (KPC) officials to steal their product and sell it through cartels that end up undercutting their market. At the height of the protests in December 2018, top Kenya Pipeline officials, including then managing director Joe Sang left office.

KPC was using a clause in the Transport and Service Agreement with the oil dealers that allows up to 0.25 per cent loss of product. One would easily be convinced that the marketers who would then be compensated through adjustment in the pump prices made the complaint as a voice of reason to protect consumers.

Unknown to many though, the oil dealers continue to enjoy free revenues milked from consumers under an arrangement that allows them to ‘lose’ millions of litres of fuel from their own storage facilities and claim compensation from the energy regulator.

The marketers, who vehemently opposed the loss assessment of fuel at KPC that assumed 0.25 per cent of the product through the pipeline would be lost have been enjoying a similar loophole that allows them depot losses of 0.45 per cent for petrol and 0.25 per cent on kerosene and diesel.

The allowance essentially means out of the 211 million litres of diesel consumed in September, the marketers could be allowed to lose close to a million litres and claim over Sh100 million in depot losses alone. The claim is then passed down to motorists through the monthly prices set by the Energy and Petroleum Regulatory Authority.

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Going by the September sales figures of 458 million litres for all the three products, the marketers made over Sh200 million, translating to more than Sh2 billion per year without having to sell anything.

Supplycor Chairman who is also KenolKobil Managing Director Martin Kimani did not want to discuss in detail why the oil marketers burden consumers with losses in their own storage.

“Pipeline losses and depot losses are very different but we can discuss it,” Mr Kimani said.

Supplycor was in the frontline with the push that the 0.25 per cent pipeline losses were part of the scheme to steal fuel and demanded that an actual loss be used instead of the assumed capping, which was proving unbearable to consumers.

The OMC’s even called for a stock audit at the Kenya Pipeline depots at the height of the protest that saw the suspension of senior managers at KPC in December 2018.

Very little has been heard about the audit that was meant to be done by March despite having been completed, according to the industry stakeholders, who also claim there is more to hide in the “incriminating” report.

The marketers who contracted London-based Channoil Consulting Limited at Sh39 million to carry out the forensic stock management audit at KPC spanning three years maintain the process is complete save for a few consultations.

Mr Kimani only said the process had been completed with stakeholders still discussing the findings amid claims that the report had indicted some of the major dealers.

Losses that don’t exist

Part of the marketers’ fault, according to those in the know, is the lucrative payments from the losses that don’t exist.

The prolonged delay of stock audit results also keeps a tight lid on the truth of the loss that nearly grounded the country’s two main airports after jet fuel was allegedly stolen through the scheme, forcing planes to fly outside the country for fuelling.

“There’s no way they can claim innocence in this scheme. It’s only that no one has ever paid attention but they are basically making millions by selling air. How do you explain losing fuel within a fuel depot in a closed system?” an industry source posed.

“There’s more than meets the eye, and this is one of the best way to make money without doing anything.”

In all the monthly fuel prices released by the energy regulator the depot losses have been maintained at the same rate, confirming that the loss is assumed and not measured.

Energy and Petroleum Regulatory Authority (Epra) Director-General Pavel Oimeke told Smart Company that the method is an international benchmark used in including the losses at the pump pricing.

According to Mr Oimeke, although the pipeline losses are indicated in the monthly pricing formula as 0.25 percent, the actual loss is used to determine the monthly prices.

“This is an international benchmark used worldwide to compensate for losses that occur due to the volatility of the product. The factor for depot losses in the petroleum pump pricing model is an international benchmark whereas the pipeline loss is actual,” Mr Oimeke said.

The same argument had been used to justify the constant loss of 0.25 percent of all the millions of litres going through the Kenya Pipeline systems until the uproar that saw Epra insist on actual losses.

Data from the Petroleum Institute of East Africa (PIEA) — the professional body for the oil and gas industry in the region — show that 5.92 billion litres of fuel was sold in the year ending December 2018, making the allowable loss of 0.25 to 0.45 per cent a multi-billion cash cow for oil marketers.

Anti-adulteration tax

The real producers of the free cash are petrol, diesel and kerosene users, who besides being hit by the marketers have six other levies and two taxes to pay for while buying a litre of petrol and diesel. Kerosene users, who are exempted from the road maintenance levy pay an anti-adulteration tax of Sh18 per litre.

Consumer Federation of Kenya Secretary-General Stephen Mutoro said the passing down of the cost was customer abuse and underlines the need for a forensic audit of fuel stock and value chain.

“Why should we lose so much fuel at the depot, whose loss and why should we pay? Are the losses natural or due to their own negligence? It borders on recklessness. It’s like someone selling fruits and charging consumers for leaving the fruits go bad. They should recover it from insurance. We should begin combing their system,” he posed.

The lucrative depot loss compensations have been kept under the radar with the OMC’s who had even physically verified stock at KPC in 2016 to check the abnormal losses while remaining less motivated to find out what they actually lose before using the blanket rate that award them the free billions.

It remains to be seen who will call out the marketers on their free cash harvest from consumers and how their argument that pipeline losses should be actual while their depot losses should remain assumed at the lucrative rates, holds as consumers continue to feel the pressure of high fuel cost in a tight economy.

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