Fuel crisis: Consumers need tighter protection

Eldoret fuel

People queuing with jerrycans at a petrol station in Eldoret town, Uasin Gishu County. PHOTO | JARED NYATAYA | NMG

The recent fuel shortage in Kenya highlights the need to protect consumers from arbitrary actions by businesses that hold a large market share otherwise known as dominants.

By virtue of their position and imbalanced negotiations positions vis-à-vis the consumer, dominants may abuse their market power against consumer interests.

The unprecedented fuel shortage lasted about three weeks. While normalcy is slowly returning, the shortage hurt the economy. The consumer suffered the most due to the shortage.

Consider those who depend on fuel for business such as transporters and manufacturers. The long queues and long wait for fuel running into several hours was not only an inconvenience but also hurt the economy.

Studies have shown that traffic snarl-ups and congestion hurt the economy as they slow down output.

There was a lot of misinformation as to the exact cause of the shortage. Initially, reports linked the shortage to the Russia-Ukraine war. There has indeed been a fuel shortage in other parts of the world attributable to the war.

For example, the UK suffered a fuel shortage tied to the war.

Further reports attributed the Kenyan fuel shortage to a disagreement between fuel marketers and the government over payment of subsidies.

According to the vendors, the Government delayed payment of the subsidies. The Government released a substantial portion of the subsidy early during the shortage, however, the shortage persisted.

Profits, welfare

The regulator said the shortage was artificial. According to reports, the government accused some fuel marketers of hoarding the commodity ahead of the monthly price reviews.

Furthermore, some of the fuel marketers were accused of exporting what was meant for the local market.

The regulator’s position against the fuel marketers seemed to be “profits ahead of consumer welfare.”

The Government promised to take action against fuel marketers found guilty of malpractice. The sale and distribution of fuel and other petroleum products are heavily regulated. For example, the commodity cannot be sold above the price caps.

Malpractices such as hoarding are offences under the Petroleum Act and are punishable. While investigations into the fuel crisis go on, it is notable that the Competition Authority is also mandated to prevent abuse of market power by a dominant.

The Act prohibits such actions as hoarding where the business entity holds a large market share.

It is fortunate that the Petroleum Act has specific provisions to regulate the market and protect consumers. However, not all goods and services are regulated in so far as use of market power goes.

For example, transport, health and others may not contain specific provisions protecting the consumer from abuse of market power by a dominant.

The fuel crisis is, therefore, a wake-up call for the protection of the consumer and indeed the economy from abuse of power by dominants.

Competition regulator

Not only does the Competition Act 2015 give the regulator the mandate to protect the consumer but the Competition Amendment Act 2019 gives the authority a specific and detailed mandate to tame the abuse of market power by dominants.

The Competition Tribunal decided in favour of suppliers who made a claim of abuse of dominant position by a leading retailer. This was the first decision of its kind.

The regulator has the power to investigate, search and decide on abuse of market power. The public can participate in any suspected malpractices by lodging complaints with the Authority.