Kenya sees artificial fuel shortage caused by oil firms

The fuel shortage which Kenya has been facing is artificial. Reliable sources in the fuel industry point at a situation where key players are creating a non-existent shortage by failing to supply products under what is known as private imports.
"A number of marketing firms place nominations to import products but end up failing to honour the pledges thus creating the shortage," one source said.

A note from the Pipeline Coordinator to marketing firms makes this concern clear: "We would like to point out a worrying trend in as far as nominations for Jet A-1 (kerosene) and PMS (super petrol) are concerned. We seem to have many dud nominations that remain potential receipts that do not materialise."
He adds: "They are really complicating planning the mainline schedule to optimise on stocks. I will here single out Jet A-1 where we have outstanding nominations amounting to 38,000 cm that were ideally expected and no firm vessel has been given for these nominations to date."

Industry playerssay that Kenya relies on two forms of importation for fuel products. One is the open tender system for crude oil products -- super petrol, diesel and kerosene -- which is coordinated by the Ministry of Energy.
The balance comes through private imports, and this is the method being exploited by unscrupulous marketers to create the artificial shortage since a company that pledges to import products but fails to do so, owes no one any explanation for the failure. In addition to this trend, a number of companies have resorted to importing far below their market share for unknown reasons. Documents show that one firm nominated to import fuel six times lower its market share did this through the open tender.

The situation in Kenya is further complicated by piracy off the Somalia coastline, which has forced ships sailing to Kenya to travel in an armed convoy supplied by an international naval force that is patrolling the volatile waters off the Gulf of Aden. Ships are forced to queue for the armed guard, losing vital hours needed to offload supplies at the port of Mombasa.
So dire was the situation that the country was at risk of running out of jet fuel which is important to sustain not just needs by local airlines but international ones which use the Jomo Kenyatta International Airport.

Existing legal provisions stipulate that any major airport must possess stocks to last at least four days. In the event this is not the case, then authorities there are under obligation to send a warning known as Notice to Airmen which would force the closure of the airport.
The intrigues surrounding the importation of fuel products into Kenya were evident when the Permanent Secretary in the Ministry of Energy Patrick Nyoike wrote to the Kenya Revenue Authority asking the taxman to allow oil marketing companies to access their dead stocks of super petrol upon payment of taxes and other fiscal imports.

The dead stocks are usually held by the Kenya Pipeline system and the Kipevu Oil Storage Facility (KOSF). KRA duly accepted but made it clear it would only allow this after due payment of necessary taxes. It also stressed that it expected the line-fill to be replenished as soon as possible.
"I do not know how this will be done since there seems to be a backlog of fuel that has not been imported into the country," our industry source said.

Each marketer is usually expected to import 70 % of crude oil and 30 % of refined products to meet their local demands. Of the 30 % of refined product, 70 % must come via the industry Open Tender System while the 30 comes via private imports. In addition to this, the market share each company holds determines the amount of allocation.
Available documents, for instance, show that in February, the country expected to get 38 mm cm of JET A1 through private imports while the remaining 36,000 cm would come through the open tender. To date, none of the 38,000 mm cm have been delivered, leaving the country solely dependent on the products imported through the open tender system which are not sufficient to meet the country's fuel needs.

"A solution to this problem lies with the Ministry of Energy banning all private imports and requiring all marketers to source their supplies through the open tender system," another senior industry player told.
He added: "Larger quantities in the open tender system would mean better economies of scale resulting in lower prices to the long suffering Kenyan consumer."

The consolidation of imports into the open tender system would also see a reduction of vessels therefore eliminating delays and demurrage, leading to lower costs. The industry is in the meantime eagerly awaiting the outcome of proceedings in Parliament, where the Ministry of Energy is expected to produce court orders showing whether it is blocked from cancelling future dealings with Kenol-Kobil which allegedly owes three State Corporations Sh 2.3 bn.
MPs had argued that the government would be within its rights to stop further dealings with the oil marketing firm.

The issue arose after Energy Assistant Minister Mohammed Mahamud issued a statement in the House indicating that the fuel company allegedly owes Kenya Pipeline Company (KPC) Sh 1.2 bn. Mr Mahamud claimed that the figure arose from "failure to pay revised tariff for use of Kipevu Oil Storage Facility, withheld payments to KPC by awarding rebates to themselves and illegal demurrage claims."
Another Sh 497 mm is owed to the Kenya Petroleum Refineries, after Kenol-Kobil allegedly refused to pay new processing fees for crude oil introduced by the government in 2006.
"Kenya Ports Authority (KPA) has informed the Ministry of Energy that they are owed by Kenol-Kobil Sh 564 mm as of March 1, 2008 for services rendered," he added.

The Ministry was responding to a question raised by Yatta MP Charles Kilonzo, who wanted to know why the government was still awarding contracts to the oil marketer.
"Whereas the Government has not awarded any contract directly to Kenol-Kobil, both KenGen (power generating company)and KPLC (Power and Lighting Company) -- both under the Energy Ministry -- have running fuel supply contracts with this group," said Mr Mahamud. "There are no other companies that owe monies to the Government. They are all paying their processing fee to KPRL, storage and transportation fees to KPC and to KPA for ship berthing and moring services," said the Assistant Minister.

Kenol-Kobil placed an advertisement in the press denying it owes the monies.