How fuel adulteration cartels trigger price increases - Daily Nation

Adulteration cartels trigger price hikes as State agencies watch

Sunday September 2 2018

 adulterated fuel

A place in Industrial Area, Nairobi where police seized more than 200,000 litres of adulterated fuel on November 4, 2016. PHOTO | ANTHONY OMUYA | NATION MEDIA GROUP 

By EDWIN OKOTH
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On the night of June 27, fire broke out on a busy street in Industrial Area, Nairobi. At risk were two logistic companies with huge godowns and goods valued at hundreds of millions of shillings.

Even at a higher risk was the country’s largest petroleum store, the Kenya Pipeline Company’s 233 million litre-tanks, off Nanyuki Road.

A flicker of flame near the tanks would not only result in the country’s worst fire disaster but would also cripple the regions’ fuel supply stability and probably kill thousands of residents in the populous Eastlands estates and slums.

Like a couple of other fuel adulteration dens, the owners of the makeshift petroleum depot, which burst into flames had found a perfect spot around Nanyuki Road, the country’s fuel capital where several depots are conveniently located to siphon fuel from KPC tanks.

HUGE QUANTITIES

The cartel that runs a parallel depot network in Industrial Area receives fuel in huge quantities, mixes diesel with kerosene and Jet A1 then distributes it across the country and beyond the borders.

It runs a multibillion-shilling racket that thrives on huge mark ups made through tax-evasion, making it a massive economic threat as much as it has become a security risk thriving under the watch of government officials.

The gutted illegal depot is perhaps the largest one on Ol Kalou Road, right opposite the Cadbury gate.

Near the illegal depot is a Liquefied Petroleum Gas station and two large logistic companies.

Another plant known to make pesticides and chemical explosives is less than 100 metres from the adulteration den, underpinning the weight of possible disaster Nairobi sleeps under every night.

FIRE ENGINES ARRIVED

It is perhaps the possibility of this disaster that two government agencies and a private fire fighting company promptly responded to the blaze that Wednesday night.

Nairobi County government and KK Security fire fighters were almost overwhelmed when KPC fire engines arrived.

They had to pass through Twiga Chemicals company premises to access the burning depot, according to a fire incident report drafted by KPC managing director Joe Sang a week after the blaze.

“This incident should be investigated by the relevant government agencies as the illegal depots pose a serious challenge to major oil storage facilities,” Mr Sang said in the letter addressed to Makadara Deputy County Commissioner and copied to Energy Regulatory Commission Director-General Pavel Oimeke.

The incident cost KPC Sh150,000 in foam, water and diesel.

FIGHT INFERNO

Top parastatal officials told the Sunday Nation that it was not the first time KPC had been made to fight such an inferno.

One may forgive the irony of a State organisation spending taxpayers’ money to fight fire at an illegal depot but the fact that it is back in business on a larger scale should baffle businesspeople and other Kenyans.

Two secret visits by the Sunday Nation a few days ago confirmed the business is up and running, just as it had been in 2016 when the same paper exposed the fuel adulteration syndicate in the city.

Several young men strategically placed on Ol Kalou Road look around for strangers approaching the area as more stand outside the busy gate, with trucks getting in and out. Some lorries are escorted by cars. Just outside the gate is a makeshift camp with an open fire.

Two streets away on Pate Road, another illegal adulteration depot is besides a narrow entrance to Mukuru slum.

Covered by rusty iron sheet and wrecks of trucks, the place is also manned by youths.

We pretend to be lost to distract the young men. They tell us to “reverse and go away”.

DRAWN OUT DISPUTE

This one too is a disaster-in-waiting, owing to its location. A fire engine cannot get into the slum in case of a blaze.

ERC, which is charged with licensing petroleum dealers and cracking down on illegal ones, declined to respond to our queries.

The regulator resorted to sending press releases after receiving our questions detailing raids on illegal petroleum dens in Salgaa, Nakuru and Kisumu where more than 1,000 litres of fuel were seized — a drop in the ocean considering the magnitude of the problem.

Officials from registered petroleum dealers, including multinationals who requested anonymity, also said ERC has not responded to their concerns.

They added that their companies have lost a significant share of the Kenyan and East and Central African market to the oil cartel.

“Before the team started the crackdown against the illicit trade, we were almost giving up,” one official from a multinational in Industrial Area told the Sunday Nation.

CONSIGNMENTS ON TRANSIT

“You can tell from this Ol Kalou Road example that this is a difficult war to win as it is obvious that the cartels have compromised the concerned government officials.”

The diesel used in the adulteration is largely sourced from consignments in transit.

The use of duty-free diesel meant for export and an addition of kerosene in the mix makes a lucrative margin for the cartel as much as it destroys vehicle engines and endangers the lives of road users.

ERC, which had contracted Swedish company SGS to mark fuel meant for export and kerosene to help reduce adulteration, has been embroiled in a year-long dispute with the firm over a Sh270 million tender.

The tender row, which was first contested at the Public Procurement Review Board in July 2017 before it proceeded to the High Court and then to the Court of Appeal where a judgement declaring the tender termination irregular was overturned, has already been re-advertised by the regulator.

CONSTITUTIONAL RIGHTS

Sources told the Sunday Nation that the company officials have not given up the fight. 

“We have filed a case at the Supreme Court since the matter touches on a range of constitutional rights and its of high importance to millions of consumers and businesspeople,” a member of the SGS legal team told the Sunday Nation in confidence as the case was yet to be admitted to the country’s highest judicial system.

“The company hopes to get a hearing date soon.”

Documents presented to the board and the courts throughout the case show ERC qualified SGS as the winning bidder but beat a sudden retreat just before the contract was signed, citing “emerging technological requirements” that had not been included in the terms of reference.

The decision sparked outrage from the fuel marker as it emerged that SGS had lowest bid at Sh272.2 million.

WITHDRAW SUITS

The closest lower bid was Intertek which quoted Sh317.6 million as SICPA — another Swedish multinational — sought to supply the services at Sh866.3 million.

The regulator is also said to have disbanded its investigations team amid reports of interference with ongoing cases of people apprehended during the crackdowns, ERC either keeping off the courts or writing to withdraw the suits.

In vain did the Sunday Nation team seek clarification from the ERC director general about these damming allegations.

Other adulteration dens where the cartel runs open business are near Donholm estate, just next to the National Oil Company service station.

The Eastern bypass and parts of Umoja estate are also known adulteration sites.

The depots are commonly known as shambas. Their signature identities are tall iron sheet enclosures and in some cases old vehicles shielding the view from the gates.

ENGINES CORRODED

In Kisumu, they are spread on the highway near Ahero and just after the airport on Busia road.

The Eldoret-Malaba road has several fuel adulteration depots close to the KPC depot.

In Mombasa, they are found in Shimanzi area, opposite the Kenya Ports Authority staff quarters.

Many others operate between Jomvu and Mariakani on the Mombasa-Nairobi road, according to a confidential brief that had earlier been shared with the regulator.

The adulteration business puts a dent on Kenya’s efforts credited with the revising of fuel standards in East and Central Africa.

The country imports fuel with very low lead content in a move meant to protect the environment and save vehicle owners huge maintenance costs.

AIR POLLUTANT

Diesel mixed with kerosene makes a dangerous air pollutant.

It also corrodes vehicle engines, thus endangering the lives of drivers, passengers and other road users.

The illegal business is behind the latest decision by ERC to increase the price of Kerosene by Sh18 per litre to match that of diesel.

However, many Kenyans say doing so is punitive to poor families who will be made to pay for the inefficiencies of the regulator and other State agencies.

“What guarantee is there that these people will not get kerosene through other means to use it for adulteration? ERC is not serious,” Consumer Federation of Kenya Secretary-General Stephen Mutoro told the Sunday Nation.

IMPORT ROUTE

“Price increase is an easy scapegoat, which is basically going to hurt poor Kenyans.”

Kenya’s export market has been badly affected by the damage on the quality of petroleum products.

Landlocked neighbours such as South Sudan and Rwanda now opt for the Tanzanian import route.

The latest export information shows that the countries, whose fuel demand stood at 2.4 billion litres in the first six months of 2018 had purchased only 1.4 billion litres from Kenya in that period.