Economy

Fuel shortage escalates ahead of price changes

fuel-shortage

Motorist and bodaboda riders scramble for fuel at a Murang'a petrol station in March. PHOTO | MARTIN MWAURA | NMG

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Summary

  • Fuel shortage has returned to haunt motorists as uncertainties over the State-backed subsidy ahead of the monthly review of pump prices persist.
  • Outlets outside Nairobi started experiencing shortages over the weekend, with the scarcity being felt in the capital from yesterday.
  • Oil dealers linked the shortages to a lack of clarity on the fuel subsidy that the State introduced last April to stabilise prices amid suspicion of hoarding.

Fuel shortage has returned to haunt motorists as uncertainties over the State-backed subsidy ahead of the monthly review of pump prices persist.

Outlets outside Nairobi started experiencing shortages over the weekend, with the scarcity being felt in the capital from yesterday.

Oil dealers linked the shortages to a lack of clarity on the fuel subsidy that the State introduced last April to stabilise prices amid suspicion of hoarding.

Delays in the payment of subsidies to the companies by the government have pushed up prices in the wholesale market where oil majors resell fuel to the smaller independent fuel retailers, who control 40 percent of the market.

This has seen the small retailers hesitate to buy the costly fuel, with increased supply of oil majors unable to plug the deficit.

The oil majors have also been cautious to increase supply, uncertain about whether the State would compensate them for fuel not used to calculate the monthly price adjustments, which takes effect on April 15 and will stay in place for one month.

The State in March partially withdrew the fuel subsidy, sending diesel and petrol prices to an all-time high in the first increase since October.

“There is growing hesitancy to take out all your stocks to the market due to the subsidy. What if the government decides to retain prices yet the stocks you are selling were shipped in at higher costs? We are talking of monumental losses,” said a CEO of a top oil marketer who sought anonymity for fear of State reprisals.

“The wholesale market is also dry because the independents are not buying the costly fuel and their stake is huge. The shortages will not go away if the government fails to address the root cause of the problem.”

The marketers are said to have increased the share of fuel they sell to the neighbouring countries of Uganda, Rwanda and DR Congo to over 60 percent from the previous 40 percent of total imports to ease their cash crunch.

This has further cut supply as the neighbouring countries enjoy normalcy.

“Kenya Pipeline says there are adequate stocks but they do not tell us how much of this is for Kenya. Marketers have skewed ratios in favour of the regional market and these are all tied to the subsidy fears,” said another oil executive who requested not to be identified.

The government says it owes the companies Sh13 billion and on April 4 released Sh8.2 billion to the dealers, who claim to be owed in excess of Sh20 billion.

The payout briefly eased the shortage amid assurances from the State that there were enough petroleum products.

Yesterday, nearly all filling stations on the Kisumu-Nairobi highway were closed while the few in the capital with fuel had long queues of motorist waiting to fill up.

A number of bus companies and cargo transporters have grounded their fleet for lack of fuel, with hundreds of city residents who had travelled to the villages remaining stranded.

Private motorists are also struggling to get the precious commodity, triggering panic buying that saw dealers hike prices and others limit the amount of fuel being sold per motorist.

A litre of petrol is retailing at above Sh200 a litre in some filling stations, breaching the level set by the Energy and Petroleum Regulatory Authority (Epra) in its last monthly fuel review.

In Nairobi, diesel and petrol prices are capped at Sh115.60 and Sh134.72 for the month to April 15— the highest level in Kenya’s history—after the partial subsidy withdrawal.

The sharp rise in fuel prices in the wake of the Russia-Ukraine war has triggered a rally in commodities like crude oil and crippled the subsidy scheme.

The weakened subsidy plan pushed the energy regulator to increase diesel and petrol prices by Sh5 a litre to Sh115.60 and Sh134.72 respectively — the highest level in Kenya’s history — in its last monthly review.

Without the subsidy, a litre of super would have increased to Sh155.11 while diesel would have retailed at Sh143.16 a litre.

Apart from straining the government’s finances, higher oil prices also drove up inflation by a half percentage point last month, and it has also frustrated policymakers.