Kenya seeks UAE oil on credit to end fuel shortageWednesday April 27 2022
Kenya is in talks to import a third of its fuel from the United Arab Emirates (UAE) on credit in efforts to cut the dominance of oil majors who have been blamed for fuel shortages.
Top officials in the energy sector told the Business Daily the negotiations will allow the State-owned National Oil Corporation of Kenya (Nock) to ship in 30 percent of the country’s diesel and petrol needs.
Nock will be expected to sell the bulk of the UAE cargo to small independent dealers, who have recently been cut off from the wholesale market in a shift that partly contributed to the biting fuel shortage that stalled transportation across the country.
A State subsidy introduced to ease fuel costs made wholesale prices to nearly match the cost of selling diesel and petrol at the pump, making the business unprofitable to independent players who do not import and buy supplies from the big players.
This partly contributed to fuel shortages that gripped Kenya from last month given the smaller independent fuel retailers control 40 percent of the market.
“They [UAE] will finance the product or provide the product with an extended credit period then Nock will trade and pay them back,” said the top official who requested not to be identified before closure of the UAE deal.
“We want to give Nock allocation to supply the independents so that the majors do not hold us hostage,” added the source.
The corporation, formed to stabilise and influence fuel prices, has largely been forced to follow the dictates of the market controlled by private players.
The debt-ridden Nock was originally mandated to import 30 percent of the country’s petroleum products, including LPG, but it lost its rights when the government opened the importation market to private firms in the 1990s.
If the State has its way, Nock will ship in 30 percent of Kenya’s super, diesel and kerosene and the imports will also be used to provide strategic stocks for the country and alleviate shortage of the commodities due to disruptions globally.
This plan is backed by the Draft Petroleum (Importation) (Quota Allocations) Regulations, 2022 and is aimed at boosting Nock’s cash flows in an industry where it has struggled to keep pace with multinationals.
But the regulations are likely to meet resistance from the rest of the industry players since they would tip the scales in favour of Nock.
Currently, the Ministry of Petroleum and Energy and Petroleum Regulatory Authority (Epra) oversee the importation of petroleum products through the Open Tender System where the lowest bidder is awarded a contract to import on behalf of the other oil marketing companies.
The UAE import deal will hand Nock a lifeline at a time growing losses have hurt its ability to compete with well-funded multinationals such as TotalEnergies, Rubis Energy and Vivo Energy.
Vivo, retailer of Shell-branded fuel products, dominates the market with a share of 21.7 percent followed by TotalEnergies at 16.4 percent and Rubis (8.6 percent). Nock is ranked 10th with a 2.2 percent market stake.
Officials blamed the fuel shortage on oil marketing companies, accusing them of breaching the rules on minimum stocks and hoarding supplies.
Oil companies have pointed to subsidy arrears owed to them by the State for the shortage. The subsidy was introduced in April last year 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.
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.