Motorists paid an extra Sh2.78 billion in pump prices last year due to delays in discharging imported fuel from ships at the Port of Mombasa, a government-backed study report has revealed.
The delays have been attributed to inefficiencies at the port, which is Kenya’s main point of entry for imported goods into the country.
“This is excessive compared to any efficiently run import facility. Even a busy port, for example, locations such as Thames (United Kingdom), Rotterdam, Singapore, or New York, would not experience such high levels on a continuous basis,” two consultants picked to assess the cost structure in the petroleum supply chain in Kenya said.
The study report by Kurrent Technologies and Channoil Consulting Ltd revealed that demurrage costs for fuel shot up to $29.1 million (Sh3.7 billion) in 2023, marking a steep jump from just $7.1 million (Sh914 million) in the previous year.
Demurrage is a charge that is incurred when cargo owners, shippers, or consignees do not adhere to the rules around ‘free time’ or storage grace period that are set out in the charter agreement.
Demurrage costs are charges incurred by importers for taking a period that is longer than agreed upon to load, transport, and discharge cargo from a ship.
The demurrage costs are basically a penalty to deter and keep those responsible for their containers moving at a reasonable, agreed-upon pace.
These charges are paid to ship owners or brokers. Importers pass this cost to consumers through higher prices of commodities.
“For Mombasa, demurrage costs in 2023 have been especially high at $29.1 million. (The figures for 2022 and 2021 were $7.1 million and $19.1 million),” says the report.
The consultants calculated that using the assumed throughput of 740,000 tonnes per month at the port and using an average price of $3.29 per tonne during the year, this translated to an additional cost of 37 cents per liter of fuel for motorists.
They said that the current demurrage cost being experienced at Mombasa is on average 2.88 days of demurrage per vessel discharged throughout the calendar year.
This is the time taken more than whatever is allowed in the sales contract.
The higher demurrage charges come despite the operationalisation of the new Sh40 billion Kipevu Oil Terminal II.
The terminal was expected to increase the efficiency in offloading oil from tankers which was to translate to lower demurrage charges.
The Energy and Petroleum Regulatory Authority (Epra) could not be reached for comment on the cause of the higher demurrage charges.
The consultants, however, indicated the higher charges could also be attributed to an increase in demurrage fees charged by ship owners due to geopolitical tensions, particularly in the Red Sea.
“Rates are currently elevated, in part due to shipping rates being higher overall, driven by global geopolitical tensions and Houthi rebel actions.
“When these situations stabilise and demand for shipping tonnage subsides, the demurrage rates can also be expected to reduce,” they said.
The latest study on Kenya fuel supply and distribution chain is the country’s second and is aimed at assessing the cost associated with importation and supply of petroleum products in the country. A similar study was carried out in 2018.
The new study will inform how Epra will set fuel prices taking into consideration the interests of players across the value chain and those of consumers.
The consultants also revealed that motorists are paying an extra Sh2.70 per litre of fuel under the government-to-government oil importation programme between the Kenyan government and three Gulf State-owned companies.
They assessed the cost implications of procuring fuel through the G-to-G, which was introduced in March 2023 compared to the Open Tender System (OTS) and found the later to be more economical.
“The Open Tender System (OTS), through monthly competition and award of supply contracts, ensures price competition between suppliers which in turn serves to ensure supply premiums remain competitive. The OTS mechanism is therefore preferred,” they said.
The revelations come at a time fuel prices in Kenya remain the highest in the region, beating prices in neighbouring countries such as Uganda and Tanzania.
Further, fuel has in recent decades become one of the most heavily taxed products by the government in the race for tax revenue.
Over the last one year alone, the government has increased three charges on the product - Value Added Tax (VAT), Petroleum Regulatory Levy, and Road Maintenance Levy Fund (RMLF) - which have further raised the cost of fuel.
