Oil monopolies commissioner sends letter to all Kenyan oil firms

Jun 29, 2004 02:00 AM

The Commissioner of Monopolies and Restrictive Trade Practices, Dr P.M. Njoroge, has now accused oil companies of colluding to effect price increases to the detriment of consumers. In a letter to all oil companies, the commissioner has announced that his office has formally launched investigations to establish whether some of the practises of oil companies breached monopoly laws.
"You are required to propose the necessary measures your company is taking to discontinue this uncompetitive practice," says the letter.

The letter has also been copied to the chairman of the Petroleum Institute of East Africa, the oil industry's lobby, asking for an explanation of the persistent increases in consumer prices of oil. In terms of setting consumer prices, the oil market in Kenya operates as an unofficial cartel, with firms consulting each other whenever they wish to increase prices or bring them down. Competition in the industry is also hampered by the oligopolistic structure of the industry.
A major factor has been the use of common facilities, from the refinery to the pipeline and on to the level of the depots. The market share of the companies are evenly divided between the major players, and have remained unchanged for decades, even after the entry of unbranded players into the business.

The oligopolistic structure of the industry has been entrenched by recent developments. In the past, most of the companies had their own depots in Mombasa and Nairobi. But in recent years, some of the major players have shut their depots, preferring to share business with their competitors.
Today, all the big marketers share two depots in Mombasa. Nairobi only has three depots, which are shared by all companies. Competition in the industry has been further stifled by a decision by the ministry last year to introduce a single entry point for all imports of refined products. All ships are now required to discharge refined fuel oil at the Government-owned storage tanks in the Kipevu oil terminal.

The situation has forced small players into signed "hospitality" agreements with the majors. Furthermore, the introduction by the ministry last year of the so-called open tender system(OTS) has only served to put the small player at a worse competitive disadvantage. All imports are now are now conducted through one central tender, presided over by the ministry.
Under the arrangement, the company which wins the tender brings in everything for the rest, on the understanding that the latter will buy the stuff in accordance with market share.

Source: The Nation
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