Oil majors have withdrawn wholesale prices for fuel in what threatens to disrupt supply to the small dealers that serve the rural economy.
Documents seen by Business Daily show small dealers are buying a litre of super and diesel from the majors at Sh158.62 and Sh139 respectively which is close to the retail price of Sh159.12 per litre of super and Sh140 for diesel in Nairobi.
Hitches in the wholesale market look set to disrupt supply given that the small dealers control 40 percent of the local market, with the big chunk being the rural economy.
Industry executives say oil majors have withdrawn the wholesale prices in a bid to protect themselves from the lower exchange rates of the dollar used to compensate them compared to rates of buying the greenback from banks.
Wholesale prices have traditionally been Sh8 less per litre lower than the retail prices of the two fuels published by the Energy and Petroleum Regulatory Authority (Epra), allowing small dealers to enjoy margins and remain competitive in the market.
“The wholesale market is dry and independents are suffering. OMCs (oil marketers) are not selling products into the wholesale market because of forex losses,” said an executive of one of the oil majors.
The executive who sought anonymity said oil majors are buying the dollar at between 125 and 130 units, exposing them to losses given that Epra calculates their compensation margins at the published exchange rate of 118 units.
Oil majors like other importers are reeling from a dollar shortage that has become acute in the past few months and increased the cost of doing business.
Small dealers control the rural economy and the drying up of the wholesale market looks set to trigger supply hitches across parts of the country.
Oil multinationals are not bound by law to resell fuel to the small dealers at wholesale prices, a loophole that has left the small dealers exposed because they cannot sell fuel above the prices published by Epra.
Small dealers lack the financial muscle to import fuel or pay for huge consignments of the products leaving them to rely on multinationals for their supplies.
Dealers who breach the published pump prices risk a fine of Sh10 million or five years in jail, highlighting the predicament of the small dealers with some already closing shop.
Withdrawal of the wholesale prices comes weeks after the small dealers depleted a consignment of 20 million litres of petrol and diesel that they had bought from oil majors at ‘reasonable prices’.
Oil majors struck a deal with the small dealers to sell them fuel in April, easing supply hitches that had hit most rural parts of Kenya.
The release of the 20 million litres allowed small dealers to remain in the market at a time the industry is grappling with delayed compensation from the State to cushion consumers from the spike in global prices of crude.