State woos local oil dealers with tax break and free land

The government plans a raft of incentives like tax breaks and free land to help counter the oil marketing oligopoly through higher investment in product storage.

Energy ministry said although the licensing criteria had been simplified to facilitate the entry of indigenous traders in the oil business, the market remained an oligopoly with 80 per cent share controlled by four multinationals — Total Kenya, Oil Libya, Vivo Kenya and KenolKobil — with storage facilities.

“The government plans to put in place a strategy to encourage the growth of indigenous OMCs (oil marketing companies) by establishing more infrastructure for storage and sourcing,” it said in its final Energy Policy document set to be submitted to Parliament for approval.

Statistics showed as at December 2013 there were 88 OMCs licensed to import petroleum products while 176 companies held licences to market petroleum products in the country.

“Establishment of open access storage facilities by investors who are not necessarily OMCs should be encouraged as a matter of policy to further facilitate the operations of OMCs which might not have individual storage facilities,” the ministry said.

The government said it would focus on the expansion of storage facilities which have been blamed for inefficiency in the petroleum sector.

“Incentives on land, levies and taxes should be put in place to attract private sector investment in storage facilities,” the ministry said.

The country is under pressure to boost its storage facilities and develop a strategic national petroleum reserve to stabilise supplies. It has no strategic reserves and relies solely on oil marketers’ 21-day oil reserves required under industry regulations.

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 where margins are small bulk supplies hold the key to profitability.

“We submit these policy recommendations with optimism. The tasks ahead are great but achievable” Energy secretary Davis Chirchir said.

The Kenya Pipeline Company plans to more than double 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.

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

The Nairobi terminal with capacity of 100,528 cubic metres is the second largest after the Kipevu Oil Storage Facility that holds 326,333 cubic metres of petroleum products.

The terminal at Kipevu is the primary facility for 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.