A worker at a petrol station in Eldoret town adjusts fuel prices. The number of firms entering Kenya’s petroleum segment has dropped sharply due to the tightening of the licensing regime in the past two years. PHOTO | FILE
What you need to know:
ERC data shows that only seven new oil marketers joined the segment in 2016, down from 12 a year earlier and 28 firms in 2014.
The number of firms entering Kenya’s petroleum segment has dropped sharply due to the tightening of the licensing regime in the past two years.
Records at the Energy Regulatory Commission (ERC) indicate that only seven new oil marketers joined the segment in 2016, down from 12 a year earlier and 28 firms in 2014.
Kenya now has 75 oil marketing companies, which import petroleum, retail at the pump and re-export some of their cargo to regional hinterland markets.
“The commission implemented a stringent licensing regime aimed at getting rid of speculators from the system,” said ERC acting director of petroleum Edward Kinyua.
Besides tough vetting, oil marketers last year raised the red flag over thin margins fixed by sector regulator despite an upward drift in operation costs.
The companies, represented by Petroleum Institute of East Africa (PIEA), lobbied the energy regulator to include their loans and inflation burdens in the monthly petroleum price reviews.
Inflation and bank interest rates are part of the formula for review of monthly pump prices, but they are not reviewed regularly.
Inflation and interest rates were last updated in 2014 despite significant changes in loan rates and inflation over the years, prompting oil marketers to push for a regular review to protect their profit margins.
Interest rates on loans have since been capped at four per cent above the policy rate, expected to remove some burden off the oil companies’ books.
The current margins enjoyed by the marketers of Sh7 a litre for wholesale and Sh3.89 for retail were last reviewed upwards three years ago.
The energy sector regulator started controlling fuel prices in December 2010 to shield consumers from cartel-like behaviour in the petroleum retail market that often suffered from wild price fluctuations.
Kenya relies on an open tenders system floated by the Ministry of Energy in which one marketer imports oil consignment in bulk to supply the rest of the industry.
Most companies rely on loans to supply the consignments alongside fuelling expansion of petrol stations.
The push by the marketers to protect their margins prompted the ERC to commission a study that would inform the frequency of updating marketers’ loan burdens and inflation in the pricing of fuel.
“Our proposal has been that the price formula be reviewed periodically to take into account, analyse and capture macro-economic factors inclusive of interest rates and inflation,” PIEA chief executive Wanjiku Manyara said earlier.
“As experienced in a better part of 2015 and early last year interest rates increased upward significantly putting a strain on the cash flows of both oil marketing companies and service station dealers as the cost of financing products and taxes increased significantly, thereby eating into their already depressed margins,” she added.
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