Consumers risk higher petrol prices over Sh5bn refinery debt

Kenyan motorists will bear additional cost at the pump if an energy tribunal allows oil marketers to get compensation for a Sh5 billion loss they claim to have suffered at the closed Mombasa petroleum refinery.

The Energy Regulatory Commission’s (ERC) tribunal is set to deliberate on the cash claim on January 17 following the oil dealers’ submissions.

The petroleum dealers claim that they incurred heavy losses arising from the Kenya Petroleum Refineries Limited’s (KPRL) inefficiencies in processing crude oil. The dispute over the refinery’s efficiency partly led to its closure in September 2013.

Total Kenya, Oil Libya and Vivo Energy want the ERC, the sector regulator, to help them recover their losses by loading Sh1 on every litre of petrol and diesel at the pump, effectively passing on the cost to consumers.

That will effectively speed up the ongoing increase of pump prices coming at a time when they have been rising with the recovery of crude in the global market.

“Any person who considers that he/she has sufficient interest may apply to intervene in the proceedings, in accordance with Rule 17, within 14 days from the date of publication of the notice,” the ERC says in a notice dated December 22.

The energy sector regulator had last April ruled out passing the costs to consumers, prompting the oil marketers to contest the decision at the Energy Tribunal.

Other claimants in the suit are Fossil Fuel, ORYX Energies, Petro Oil, Regnol Oil and Gapco – which is set to be acquired by Total.

Before the refinery’s closure in 2013, the oil companies were obligated to refine a portion of their crude at the facility for a fee.

KPRL had the discretion to decide whether to refine the crude from each of the companies separately or to mix it with that from rivals.

The dealers argue in their claim that the final product mix refined by KPRL often contained higher quantities of less valuable heavier oils and less quantities of the more valuable white products, leaving them with “yield shift losses.”

READ: ERC told to review formula it uses to set fuel pump prices

They now want motorists to bear the burden by paying an extra Sh1 on every litre of fuel at the pump for a period of up to three years.

If allowed, the move would alter the ERC’s pricing formula for capping pump prices and protecting consumers.

Industry data shows that Kenya consumed 1.5 billion litres of petrol in 2015 and 2.4 billion litres of diesel, meaning adding Sh1 to every litre would generate Sh3.9 billion a year and Sh11.7 billion in three years – higher than the Sh5 billion the dealers say they lost in the deal.

Analysts said the quest by the marketers to burden consumers with the claim is unfair as consumers had nothing to do with the inefficiencies.

“The price formula was never intended as a clearing house for third party historical commercial claims, which the consumer was not party to,” said George Wachira, the director at Petroleum Focus Consultants.

Total, the market leader in Kenya, is seeking to be compensated Sh2 billion in losses.

KenolKobil last August opted to write off Sh3.1 billion that the KPRL owed it for the past 15 years, claiming the refinery had been unable to meet its contractual obligations.

Consultancy firm Deloitte in 2013 released a report that faulted KPRL for failing to settle claims of Sh3.5 billion arising from yield shift losses.

The energy sector regulator, however, says the final compensation amount is yet to be determined should the oil marketers win the case.

“That’s their (oil marketers) figure since we haven’t quantified it yet. Some have put it at Sh3.5 billion, others Sh5 billion while another group at Sh7 billion but that is yet to be determined,” said Edward Kinyua, the acting director for petroleum at the ERC. “It will only be arrived at after the tribunal is through with the process.”