Multinationals blamed for fuel hitch

May 16, 2011
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, NAIROBI, Kenya, May 16 – A fresh battle is unfolding in the oil industry after local marketers came out to accuse their multinational counterparts of \’dirty games\’ that are causing the ongoing fuel crisis.

Under the umbrella of the Petroleum Industry Association of Kenya (PIAK), the 43 firms alleged that multinational oil firms which hold a combined retail market share of about 70 percent are manipulating the importation of fuel products and creating an artificial shortage in the market.

PIAK Secretary General Eng Peter Njeru cited the Open Tender System where one major oil firm that was supposed to import 38 million litres at the begging of April; brought in about 28 million litres instead, signifying a shortfall of 10 million litres.

Under the OTS system, all marketers operating in Kenya place orders to the firm that wins a monthly importation tender. This means that the importer is obliged to deliver the exact amount in the tender, failure to which results in shortages.

"The OTS requires everybody to order at the same time, so when one person does not give everybody their share, then we start having shortages in many stations," Eng Njeru said.

PIAK has also censured the big firms for what it calls an attempt to frustrate the OTS system by failing to place their monthly orders on time.  Eng Njeru alleged that the big firms would then arm-twist the government to intervene in their favour to avert a public outcry due to the resultant shortage.

PIAK Vice Chairman Issa Mohamed said since introduction of the Energy Regulatory Commission (ERC) formula, multinationals have reduced product purchase for the local market to cushion them from perceived financial risk.

"After realising that the price controls were actually not as bad as anticipated, these marketers are now trying to get back to the level they were before by undermining the industry\’s agreed operational procedures," Mr Mohamed said.

The OTS system was introduced to allow locals to share in the product imported by one big player. This allowed the country to negotiate fair rates through bulk purchase discounts.

Following limited participation by the multinationals, the small companies have been the major beneficiaries with players such as Gulf Energy and Galana Oil being more dominant.

Mr Mohamed said multinationals were now mudslinging their smaller counterparts and blaming them for the shortages.

"Multinationals have consistently failed to adequately plan for their requirements due to inefficiencies leading to a shortage of fuel to sell at their outlets," he said.

Early this month, Nairobi was exposed to a major shortage of super petrol with motorists queuing for hours at pump stations where fuel was available.

PIAK fears that if left unchecked, fuel products on the Kenya Pipeline Corporation (KPC) system will be owned by two major companies adding that it was unlikely that there will be an inclusive supply tender for June.

"The Kenyan market should expect to be at the mercy of a few major oil companies come June/July as they will be the only ones having product, not forgetting that they have the muscle to hold the country at ransom," Mr Mohamed said.

The multinationals blamed the shortage on the hogging of storage space by the small oil firms who are major players in the export market.

PIAK however distances its self from the shortfall saying they order enough stocks under the OTS agreement for both the local and export market.

Most landlocked countries like Rwanda, Uganda and the Democratic Republic of Congo source their petrol products through the Kenyan port of Mombasa. However, in Uganda for example, fuel supply has been comparatively smooth as compared to Kenya.

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