Commodities

Oil majors fuel pricing denies small firms margins

Daniel Kiptoo Epra

Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo. FILE PHOTO | NMG

Oil majors are selling fuel to small dealers at retail prices denying them margins and partly contributing to the current supply woes in several parts of rural Kenya.

Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo said that oil majors are not reselling the commodity at wholesale prices due to uncertainty on compensation from the State.

Small dealers do not import fuel and buy supplies from the big players and have since last month been grappling with outages at their stations that are mainly in the rural parts of Kenya.

Oil majors are not bound by law to sell diesel, petrol, and kerosene to small dealers at wholesale prices.

The supply woes bedeviling the small dealers have hit motorists in rural parts with Western and Rift Valley regions reporting a fresh round of shortages similar to the one experienced last month.

“Oil marketing companies (OMCs) are offering products to resellers at the pump price since if they went any lower then they would be giving away value which they have already got from the government,” Mr Kiptoo said.

“Compensation to OMCs is based on the retail price such that if an OMC is to offer the product to the wholesale market at a price lower than the published pump price then such an OMC would lose the difference.”

The lack of wholesale prices is drying up the cash flows for the small dealers given that they cannot sell fuel above the retail prices published by Epra in the monthly review.

The Petroleum Act of 2019 imposes a fine of Sh10 million or five years in jail for dealers who sell fuel above the price set by the regulator.

Small dealers have for the past few weeks sought Epra to intervene and set wholesale prices in a bid to help them get petrol, diesel, and kerosene supplies from the majors.

But Mr Kiptoo said that the regulator will not set the wholesale prices, a decision that looks set to pile pressure on the small dealers.

Epra reckons that setting caps for the wholesale market will open avenues for dealers to rip off the government for subsidy compensation given that it will be difficult to determine how much was sold in the wholesale market.

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