Government averts fuel crisis in row with dealers

The government moved swiftly Thursday to avert a fuel shortage crisis in the country by ordering Kenya Pipeline Company (KPC) to freeze implementation of a controversial system upgrade that had left oil marketers without petroleum stocks.

Oil marketing firms Thursday reported highly depleted stocks that could have left consumers feeling the pinch of outages as an apparent row with KPC cut out supplies.

“It has come to my attention that KPC has commenced implementation of the SAP system contrary to an earlier agreement at CEOs meeting held at Serena Hotel on August 26, 2014 that the implementation of this system be suspended pending resolution of outstanding issues by a committee constituted in the meeting,” Joseph Njoroge, the Energy and Petroleum principal secretary said in a memo sent to KPC managing director Charles Tanui.

By Thursday morning, several oil marketers were not able to load stocks from the KPC system with a number of retail stations turning away customers due to lack of fuel.

Industry players said the situation had mainly affected the supplies of Super petrol, which is dominantly used in cars and light transport vehicles.

“We are experiencing problems with products supplies starting today (Thursday) and we fear this situation is going to escalate in the coming days and affect our customers. Our stocks are depleting fast we fear for the worst,” said Polycarp Igathe, the chief executive of Vivo Energy (which trades locally as Shell) in an interview.

The Energy and Petroleum ministry ordered KPC to defer the implementation of the new software application that is targeted at boosting efficiency through constant monitoring of stocks held or sold by marketers.

The PS further said in his letter: “Implementation of this system has slowed and jeopardised access to stocks by oil marketing companies. You may wish to note that stock outs have been reported in some retail outlets.”

Mr Njoroge urged the KPC management to ensure a smooth transition to the new system to avoid disruption in fuel supplies.

“The purpose of this letter is therefore to ask you to defer implementation of the SAP, CFA and TSA,” he said in reference to the software application targeted for implementation by KPC.

Oil marketers lauded the move by the government and urged KPC to freeze implementation of the new system until October to allow for compliance.

“The situation was going to be bad come the weekend. The action by the ministry is God-sent because consumers were going to be hard hit,” Mr Igathe said in reaction to the letter.

The country remains vulnerable to shortages due to inefficiency in the petroleum supply system that also serves neighbouring countries such as Uganda, Rwanda, the Democratic Republic of Congo and South Sudan.

Kenya is under pressure to boost its storage facilities and develop a strategic national petroleum reserve to stabilise supplies.

The country has no strategic reserves presently and relies solely on oil marketers’ 21-day oil reserves required under industry regulations. Several initiatives are ongoing to expand the country’s petroleum distribution and storage infrastructure.

Extra storage facilities are considered critical by oil marketers in the region because of the thin margins realised from sales. In fragmented markets such as East Africa’s where margins are small, bulk supplies hold the key to profitability.

KPC plans to more than double the capacity of its fuel terminal in Nairobi to cater for the extra load of petroleum products when a new pipeline linking the capital with Mombasa becomes operational in 2016.

READ: KPC plans more fuel tanks ahead of new pipeline

The oil firm said it would construct four additional storage tanks with a total capacity of 133.52 million litres, an equivalent of 22 per cent of its present total national capacity of 612.32 million litres.

The Nairobi terminal with a present capacity of 100.52million litres is KPC’s second largest after the Kipevu Oil Storage Facility (Kosf) that holds 326.33 million litre of petroleum products.

Analysts said an expanded KPC facility in Nairobi would also help marketers reduce demurrage charges and improve on the Open Tendering System (OTS) by removing restrictions on quantities of products that can be imported.

Currently, the Kosf is the country’s primary facility of receiving imported refined petroleum products, both distillates and spirits, and has a storage capacity of 326 million litres, while its operational capacity is 269 million litres.