The Oil industry is grappling with confusion surrounding shortage of super petrol, flawed import allocation processes, poor refinery and transportation mechanisms and a government regulator that seems to have forgotten about its mandate. All the inefficiencies are passed down to the consumer as inflated pump prices. Yes international crude oil prices have been skyrocketing due to conflicts in the oil producing and exporting countries in middle East. But why blame factors beyond your control when you can clean up your own mess? Who says the crude oil prices won’t go up again in 2012? Do we have to pay exorbitantly for fuel until the countries in middle east stop fighting? who says they will bury the hatchet any soon, what if they don’t?. What we need is to come up with structures and mechanisms to Hedge against these kind of eventualities. We cant stop the Arabs from fighting for their freedom if they so wish.
The current Fuel Prices in Nairobi and Mombasa as per ERC Recommendation
- Super 112.09 115.35
- Diesel 104.77 108.02
- Kerosene 89.77 92.61
- Regular 108.23 111.48
Comparatively on 14/01/2011 the same watch dog had announced prices that really caused uproar among the public, 1 Litre of super was trading in Nairobi at 94.03 while diesel was 87.45 and Regular traded at 94.39. There has been a big marginal increase in fuel prices for the last 4 Months.
What Ought To Be Done Differently To Avert Current Problem
Despite the fact that Kenya’s problems are externally generated and the country has very little it can do to control what is happening on the international market being a net importer of oil, increased investment is needed in this sector in order to reach both MDG and our vision 2030 because without reliable energy sub-sector all other industries will basically stagnate.
Renewable sources of Energy- Kenya is endowed with numerous unexploited natural resources for example wind energy, solar energy, geothermal springs,Biomass – including wood and wood waste, municipal solid waste, landfill and Bio-gas all these are poorly exploited. Take for example solar energy Kenya has 12 hours access to this resource per day, we take it for granted. why not subsidize the solar panels and let at least each household own one. We have made good strides with the geothermal exploitation in the Rift Valley. Our hydro power is a total mess as far as I’m concerned why rely on fuel to generate electricity? why the ambitious Rural Electrification Project, expanding the electricity network when the consumption needs of the existing customers is not yet fully met. Let us put our priorities right.
Import Routes– in long run we should keenly re-look into our import routes. Alternative sources of crude oil can be exploited to supplement the traditional middle East and the Indian ocean route. Southern Sudan can be of great help in near future once the country gets on track we can design a pipeline to S. Sudan, construct good road to link the two countries and exploit alternative modes of transport to ferry in that precious commodity. Uganda just discovered oil we should be positioning ourselves as their main customer. It will definitely be cheaper to get oil from Uganda than elsewhere. Unless this is done early countries like Rwanda,Burundi and DRC might just takeover that positioning leaving us struggling with our poor futuristic forecasts.
Enhance the efficiency of the regulator. Why export what you Don’t produce/have? The essence of international trade is to Import what you have a Deficit and Export what you have a Surplus. In this case we have a deficit in our market as far as petroleum products are concerned, our infrastructures can’t accommodate our own needs and demands why over strain them,Through export to other countries? Do we love our neighbors more than we love ourselves? The oil industry was liberalized in 1994, one will wonder why liberalize and set prices. price controls by the central government is an Economic phenomenon that has been disapproved by time, the market is self regulating and will eventually hit an equilibrium point, setting both the Equilibrium Quantities Supplied and Equilibrium Prices without government interventions. I think ERC should actually be setting the price ceilings (the maximum price level) rather than set actual prices.This will encourage competition amongst industry players that will lead to reduced prices. ERC- The Energy Regulaory Authority should stick to its mandate rather than behave like an industry player, Its mandate include:
- Regulate the electrical energy, petroleum and related products, renewable energy and other forms of energy.
- Protect the interests of consumer, investor and other stakeholder interests.
- Maintain a list of accredited energy auditors as may be prescribed;
- Monitor, ensure implementation of, and the observance of the principles of fair competition in the energy sector, in coordination with other statutory authorities;
- Provide such information and statistics to the Minister as he may from time to time require; and
- Collect and maintain energy data;
- Prepare indicative national energy plan;
- Perform any other function that is incidental or consequential to its functions under the Energy Act or any other written law.
Infrastructure Development– it does not make any logical sense let alone economical sense to withdraw oil marketers rights to import crude oil simply because the kipevu jetty entry point is congested with oil tankers!!! it sounds absurd but that is how it happens in Kenya, why not think of building another docking terminal for oil tankers. KPRL-Kenya petroleum refineries ltd is dodged with frequent breakdown basically due to the fact that the old plant can no longer handle the volumes, we need to rethink our policies on priority investment. If the government can not inject more funds to expand the plant then it has no business holding its share of the stake in the refinery let them float their share to the public to raise funds for expansion. who said their is no money in Kenya. We should sync the expansion of our infrastructure in line with Economic and Population Growth Rates. The KPC- Kenya pipeline company ltd has among the best infrastructure in Africa boasting of over 800km of pipe it has the potential to reverse its fortunes, they should consider setting up depots in all major strategic towns along the pipeline. Through Expanded import jetties and pipelines and efficient distribution through pipelines to depots, strategically located all over called bridging to designated retail outlets, oil prices can come down tremendously. There is also provision for using the Rail System to move from some of the depots directly this can maybe rejuvenate the dwindling fortunes of Kenya-Uganda Railway and reduce tankers on our Highways.The ease with which petroleum products are sourced and distributed to all parts of the country,can enable marketers to sell the product at a uniform price across the country why would some one in Moyale pay additional Kes 8 due to distance.
Support the Small Indigenous oil marketers– the only way we can achieve equitable distribution of oil throughout the country is by supporting stand alone petrol stations rather than having a market dominated by a few big players who are more likely to form cartels to defraud the public through hoarding. By allowing these small petrol stations to buy directly from the suppliers rather than buy from the big oil marketer and expect them to sell at a predetermined price set by ERC. How on earth do you expect a retailer to sell at the same price as his wholesalers. A small petrol station serving an estate buys fuel from Shell or Total and is expected to sell at same price as Shell or Total, it will simply close down. because motorists will get their supplies from shell/total located on their way….. On main highways. Once it closes down the supply chain is cut. This is why we should be weary of the big oil marketers they have the muscle to hold the country at ransom by arm-twisting the government.
Plan for National Petroleum Strategic Reserves- To hedge against the frequent price surge associated with international oil prices we should build our oil reserves that we can fill when crude oil prices are at their lowest, store them to offset local oil prices when prices rise, this is done by diluting the prices through releasing small quantities from our reserves to supplement the volumes procured at high price. The US boosts of one of the biggest Reserves, that can cater for their petroleum needs for 34 days, that is, about 727 million Barrels, Closer home Rwanda, a small landlocked country that imports through Kenya has reserves that can cater for her oil needs for several weeks. Ours is a very complicated situation,it is not that we don’t have storage capacity. KPC has some good capacity but the oil stored there awaits prices to shoot. Basically our reserves are used for Hoarding, bigger oil marketers stores oil to drain the market and cause artificial shortages, thus pushing the prices up.Kenya Pipeline Company is said to be having enough stocks that are meant to be for the export market and not local consumption. Most landlocked countries like Rwanda, Uganda and the Democratic Republic of Congo source their petrol products through the Kenyan port of Mombasa.