Govt warns oil cartels over shortage

May 5, 2011 12:00 am

, NAIROBI, Kenya, May 5 – The government on Thursday threatened to cancel the licenses of oil marketers who sabotage supply as a petrol crisis in Nairobi entered its fifth straight day.

Energy Minister Kiraitu Murungi admitted that cartels in the oil industry were frustrating the government’s regulatory measures and disrupting economic stability.

“It is true that the oil sector is controlled by very few companies that like to maximise their profits, but it is our duty to protect Kenyans. We have the Energy Regulatory Commission (ERC) and we have the Monopolies Commission to monitor them so if any of them breaches the Energy Act, we are ready to cancel their licenses,” he threatened.
Unfortunately, the government has not been able to adequately ‘protect’ Kenyans seeing as the marketers have continued to openly flout the rules and subject consumers to untold suffering.

Fuel shortage has continued to be a perennial problem in Kenya and the government has not been able to effectively reign in the cartels that seem bent on holding the country hostage.

The Energy Act provides that the oil companies should have a minimum of 21 days operating stocks within their systems to act as strategic reserves but this has not worked.

The government yet again seems powerless in enforcing it primarily because the country lacks adequate storage facilities for the petroleum products.

For years after the petroleum sub sector was liberalised, oil marketers used to arbitrarily increase pump prices but were slow to adjust them downwards, a scenario that forced the government to resort to price controls which saw margins capped to Sh6 per litre.

The enactment of this law obviously put the government on a collision course with the marketers and has been cited by industry watchers and the government itself as one of the reasons why the problems in the sector have arisen again.

Mr Murungi could not rule out that the firms were trying to arm twist the government to remove the price control regulations. He however has remained adamant that the government will continue to enforce the law to cushion Kenyans against erratic supplies and exploitations.

“I know some marketers have not been happy with the price regulations and obviously would like to play some tricks to force us to review or remove the controls altogether. But if we remove them, then there would be more demonstrations from the citizens because of the high fuel prices,” he said.

“So as a government we are determined to maintain the regulations to protect Kenyans from exploitation so whatever they do, we are not going to remove those controls,” the minister stressed.

And while he admitted that the government seemed to deal with the issue in an ad hoc manner, he held that the only guarantee that the country has to eradicate the problem is to have strategic oil reserves that can cushion it against supply chains disruptions.

“Our only solution is to have strategic reserves to cushion us against any interruptions and erratic supply,” he said.

However, this is a very costly venture has been estimated to cost roughly Sh88 billion for a 90 day reserves and their storage facilities.

The other long intervention would be to upgrade the aging Kenya Petroleum Refineries Limited (KPRL) but this option, projected to cost nearly Sh100 billion has been complicated by the discovery of oil in Uganda.

The argument is that it will not make economic sense for Kenya to spend all that resources while Uganda will, in the next few years, put up a modern refinery to process its crude oil and supply the country with cheaper oil.

While all these alternatives are being considered, Kenyans will unfortunately have to bear with the inconveniences in the industry. The minister, for instance, speculated that some players wanted to benefit from the recent Excise Tax reduction on diesel and kerosene.

Currently, the government expects the fuel shortage to normalise by end of Friday after about 7.3 million litres of petrol were transferred to oil firm depots in Nairobi between Tuesday and Thursday.

Mr Murungi has appealed to motorists to stop panic buying which was exacerbating the crisis.

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