Oil importers risk ban in stiff licensing guidelines to decongest fuel depots

Oil importers will be required to own at least five service stations and sell a minimum of 15 million litres of oil per year to be allowed in the Kenyan market as part of new rules drafted to decongest fuel storage depots and pipelines.

Issuance of oil import licences by the Energy Regulatory Commission (ERC) will be subject to the new regulations starting January 1 next year.

The move is expected to discourage hoarding of fuel by importers in anticipation of brisk business by creating artificial shortage in the market, a situation that has in the past pushed up pump prices.

With the current intense market share battles, the new guidelines are poised to “eliminate unnecessary competition” since only firms that meet the criteria will be in operation.

The rules will also serve to check demurrage costs on fuel occasioned by delays in clearing of stock at Mombasa port storage facilities, resulting in high fuel retail prices.

Energy secretary Davis Chirchir said that renewal of licences, which last for one year, will be based on the new rules.

“They will have to comply or exit the scene,” he told the Business Daily in an interview, adding that the guidelines would help the industry self-regulate.

The prohibitive cost of setting up service stations, he argues, would ensure only serious players in oil sector remain in the market.

It costs between Sh20 million and Sh70 million to set up a fully stocked petrol station, according to Mr Chirchir.

“The regulations are for purposes of allowing only serious players in the oil import sector,” said Linus Gitonga, director for Petroleum at ERC in phone interview.

There are 67 firms in the industry, with the regulator having licensed 20 of them to import oil while the rest are independent dealers.

At present, there are no restrictions on oil importation with firms required only to enter agreement with the Energy ministry on import open trade system and another one with the country’s refinery from where they are required to source 40 per cent of their oil (product off-take agreement).

There are no charges on licence.

In the guidelines, companies that fail to meet the oil sale threshold will only be allowed to import the commodity if they are in possession of five petrol stations or a depot.

“Companies that do not meet these criteria will have their licences downgraded to wholesale,” Mr Gitonga noted.

The new development is likely to result in emergence of holdings with established firms buying a majority stake in smaller firms to avert a possible shutdown by the latter.

Revocation of licence by the energy regulator limits a firm to services performed by independent dealers, including direct supply of fuel to industrial consumers such as factories by fuel tankers.