Fuel crisis looms as stocks dry up on dollar shortage
Boda boda operators scramble for fuel at a Shell outlet in Kisumu City amid a biting shortage in April last year.
Consumers are facing fresh fuel shortages as some major oil marketing companies (OMCs) in Nairobi exhausted their stocks and turned away motorists amid serious cash-flow challenges triggered by dollar shortages.
A spot-check by the Nation revealed that several petrol stations in parts of Nairobi had run out of petroleum products from the weekend, with those owned by Vivo Energy among the hardest hit.
By Sunday afternoon, several outlets by Vivo under the Shell brand had run out of super petrol, with attendants giving motorists the option of buying the company’s V-Power brand. The situation deteriorated yesterday with some of the Shell outlets on Nairobi’s Lang’ata Road reporting total depletion of products including super petrol, V-Power and diesel.
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Vivo did not respond to our queries over the scarcity of fuel at its retail outlets even though insiders and an industry association attributed the situation to a dollar shortage.
“There is sufficient fuel at the depots but the major oil companies are not evacuating it because they do not have sufficient dollars,” said Petroleum Outlets Association of Kenya (POAK) Chairman Martin Chomba.
Vivo Energy is the largest OMC in the country with a market share of 23.83 per cent, having sold 1.36 million cubic metres of fuel products in the financial year to June 2022.
Buy fuel in bulk
The major oil companies such as Vivo, Total, Rubis and Ola Energy buy fuel in bulk and supply it to the smaller independent retail outlets, meaning that a shortage at these top firms cascades down to the smaller players.
Kenya is currently battling an acute shortage of US dollars primarily due to pressure exerted by external debt repayments.
Data from the Central Bank of Kenya (CBK) released on Friday shows forex reserves dropped to $6.6 billion (Sh845.46 billion) on March 2 from $6.86 billion (Sh878.76 billion) on February 23. This translates to 3.69 months of import cover, which is below the set threshold of four months and comes despite CBK Governor Patrick Njoroge constantly downplaying the shortage.
Demand for forex has shot through the roof in recent months as importers seek more dollars to finance imports owing to higher global prices of fuel, food products, cooking oil, steel and other imports.
“Yes, talk to the big OMCs. It is a crisis,” said an executive of a smaller oil marketing company who requested anonymity.
The Energy and Petroleum Regulatory Authority (Epra) has also failed to fully withdraw the subsidy on diesel which has compounded the cash-flow woes of the OMCs.
Epra last month partially reinstated a margin of Sh2.54 per litre of diesel, but amid continued delays by the National Treasury in releasing subsidy funds, the firms have been pushing for the termination of the scheme to ease their cash-crunch.
Muted fuel sales
The OMCs have been borrowing to fulfil their cash needs for fuel imports, but muted fuel sales owing to the tough economic conditions that have seen many motorists park their cars in favour of public transport have compounded their woes.
Should the fuel supply hitch evolve into a full-blown fuel scarcity crisis, it would mirror a similar crisis that began in late March last year after OMCs resorted to hoarding fuel in protest against the government, which had accumulated subsidy arrears of Sh13 billion.
The government cracked down on the OMCs, accusing them of economic sabotage by failing to take fuel stocks from depots. The crackdown saw some managing directors of 10 firms issued with show-cause letters and forced to record statements with the Directorate of Criminal Investigations.
The then acting Petroleum Cabinet Secretary Monica Juma said the firms had breached the Energy (Minimum Operational Stock) regulations of 2008 that require OMCs to maintain a specific stock level that guarantees the country security of supply.
The regulations require oil companies to stock petrol that can last 20 days, diesel for 25 days, kerosene for 20 days and 15 days for liquefied petroleum gas based on their daily consumption figures in the two previous quarters of the year.
President William Ruto’s government has resorted to government-to-government procurement of fuel, which will see state-owned Gulf companies supply fuel to one local OMC of their choice, who will in turn distribute it to other local players.
The government has already floated a tender of nine months for the fuel supply through the new arrangement, which is a temporary move away from the Open Tender System where some 112 OMCs compete to procure fuel on behalf of the others.
The government says the new system will help to reduce pressure on forex reserves considering that in the government-to-government fuel purchasing, payment for the cargo will be made after six months compared to the current system where the firms have to pay for the cargo every week.
