Kenya expects fuel price cuts

September 20, 2010
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, NAIROBI, Kenya, Sept 20 – Motorists should expect to see a reduction in fuel prices this week, a senior government official has said.

Energy Permanent Secretary Patrick Nyoike disclosed on Monday that he had been having discussions with oil marketers to appeal to them to lower their prices and he was hopeful that they would heed his request.

“I have been talking to them individually. I cannot commit myself 100 percent but between now and Friday, we should start seeing prices coming down,” he said.

There has been a price hike in the last few weeks resulting from a shortage that was attributed to delays in discharging products at the Kipevu Oil Storage Facility (KOSF).

The PS however maintained that the increase, which has seen some marketers post a profit margin of Sh12 per litre of petrol, is unjustified.

He further said that there were enough stocks in the country with about 13 million litres being held in Nairobi, Nakuru, Kisumu and Eldoret on Monday.

“If you look at the trend internationally, prices in July were higher than in August. Whatever we are consuming right now is what was imported in August so the companies did not have any basis for increasing prices,” the PS added.

Arbitrary increment of pump prices has been a common feature in the Kenyan market since the industry was liberalised. Despite having a provision to control prices in the Energy Act, the government has been reluctant to go that route arguing that the market should be left to the forces of demand and supply.

This has in turn created a larger-than-life cartel in the market, which has reduced the government to a ‘toothless dog’ that can only appeal to oil firms to lower their already exorbitant prices.

Mr Nyoike however blamed this state of affairs on the abuse of the ullage allocation system by some unnamed big players whom he said were under-utilising the space given to them.

Ullage allocation at KOSF is distributed based on a firm’s market share and if for example a marketer is given a space to store 10,000 Metric Tonnes (MT) worth of products and only uses 4,000 MT, in most cases, such a firm is forced to make private arrangements and import to meet the shortfall.

“Those private arrangements are the ones hurting us. But from last week we said ‘no more private arrangements’. All those who want to import transit products for Uganda, Rwanda or DRC; they have to go through the ullage committee so that we can stop random importation,” he explained.

To further minimise the delays, the PS added that the companies will now be able to access their products within one hour after clearing their financial obligations with the Kenya Revenue Authority.

“We have also asked the companies to install fuel metres which would enable them to receive products from the pipeline systems and the same time they are loading tankers,” Mr Nyoike added.

In the meantime however, the only recourse is to empower the National Oil Corporation, which was recently mandated to import 30 percent of the country’s petroleum requirements, to enable it effectively play its role as a price stabiliser.

This however might take a few years since NOCK is still a small player, with only 70 outlets, and a market share of just about five percent.
 

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