Oil firms given 10 days to collect fuel

He asked the government to drop the time limitations and embark on boosting efficiencies in the oil supply system, including at Kenya Petroleum Refinery Ltd (KPRL) and KPC.

Mr Kiraitu said the government was looking at building either a new jetty in Mombasa or a pipeline that would help offload petroleum products from ships in high seas, easing delays at the single jetty that forces ships to queue for weeks.

The new regulations could increase efficiencies in the supply chain, with refined petroleum exports arriving at pump stations at faster rate, averting crises that such the prevailing one that have caused massive traffic jams and disrupting transportation of people and goods.

Mr Kiraitu also announced ambitious plans to setup a strategic oil reserves owned and managed by the government to cover the country’s oil needs for 25 days at a cost of over Sh20 billion.

He said his ministry is consulting with Treasury to release the funds within the remaining two months of the current fiscal year to fast-track the plan.

The implementation of the plan is expected to cushion the economy from the frequent heavy shocks whenever there is inadequate supply of petroleum products as a result of a long legacy of underinvestment in the refinery, supply, and petroleum storage system in the country.

The recent crisis, for instance, was partly caused by the failure by Kenya Petroleum Refinery Ltd (KPRL) to process eight million litres of petrol last month following a power outage at the Kiambere power station that stalled production for over a week.

The lack of a strategic oil reserve has exposed the country to high oil prices brought home by political upheavals in the oil producing Arab world and speculation in the international oil market.

Last month, the price of diesel, petrol, and kerosene rose to record levels after the Energy Regulatory Commission (ERC) released new maximum retail prices of the products that revealed a sustained rally in the international price of the commodities.

The strategic oil reserve plan comes at a time when the government expenditure has been growing rapidly, driven by the expanded bureaucracy under the new Constitution and massive infrastructure projects.

Revenue collections are also expected to fall below set targets for fiscal 2010/11 following the recent tax waivers on staple commodities to avert public unrest over surging cost of living.

Analysts however say the plan is essential to cushion the economy from disruptions that come with occasional fuel shortages.

The government can either run a deficit or borrow more from the local or international markets to fund the plan,” Prof Joseph Kieyah, an analyst at the Kenya Institute of Public Policy Research and Analysis said.

The high costs of setting up a strategic oil reserve could be offset by high economic growth in the coming years,” he said.