Oil dealers in epic legal battle over reduced profit margins

A petrol station worker fuels a car on July 14, 2019. Retailers are accusing the regulator EPRA of unilaterally introducing new charges. PHOTO | FILE | NATION MEDIA GROUP


What you need to know:

  • The regulator raised the retail operations margin per litre of fuel from Sh3 to Sh4.14.
  • Petroleum price controls started in December 2010 when the maximum margin per litre was set at Sh6 at wholesale and Sh3 at the retail level.

The timing could not have been better. As the busy Christmas period was kicking in, the Energy and Petroleum Regulatory (EPRA) in November 2019 announced new profit margins for petroleum products retailers.

The regulator raised the retail operations margin per litre of fuel from Sh3 to Sh4.14.

But hardly six months later, the promise of enhanced profits has all but diminished as retailers battle with the giant oil marketers and EPRA over the former’s decision to unilaterally introduce new charges that have wiped out the Sh1.14 increment they had received in November 2019, and even more.

For the retailers under the umbrella of the Kenya National Petroleum Dealers Association (KENAPEDE), EPRA has become nothing more than a bystander, watching as the giant multinational oil marketers disregard the regulations on the profit margins by introducing new charges that are also not covered by Marketing License Agreements (MLAs).

DISPUTE

The dispute is now the subject of judicial review proceedings at the High Court as retailers seek to have the court compel EPRA to enforce its laws and regulations.

“The applicant submits that the 2nd respondent (EPRA) has by its action to ignore the ex parte applicant’s grievances contained in its several letters amounts to a breach of its statutory duty towards the applicant who is a stakeholder in the petroleum industry, and the failure to address its grievances has caused its members to suffer through being subjected to low retail operating margins due to manipulations by the oil marketing companies,” the association says.

The dispute over profit margins is one among several issues the retailers on the one hand, and oil marketing companies and EPRA on the other, have locked horns.

For instance, retailers have also accused the regulator of failing to take action on fuel losses during delivery of up to 350 litres per order, and complaints over intimidation by oil marketing companies.

EPRA did not respond when Sunday Nation reached out to them.

PROFIT MARGINS

In the particular case of profit margins, the retailers say that oil marketing companies came up with new charges such as working capital charge, Health Safety, Environment and Quality (HSEQ) charge, digital charge, research and development, training and assistance charge and through-put charge.

They say that before EPRA’s announcement of November 14, there were no such charges.


According to the court papers, the oil marketing companies have been trying to regularise the illegal charges by coercing the dealers to sign amendments to the existing dealership marketing license agreements.

“Even though in theory the members of the ex parte applicant seem to be receiving the prescribed margins, the oil marketing companies by introduction of these new charges through the back door are exploiting the margins as the members have to provide for these charges from their margins,” the association says.

As a result, they say that retailers have been getting margins as low as Sh3 per litre, contrary to the Sh4.14 prescribed by EPRA in the new regulations published in November 2019.

The matter will be coming up for mention on Tuesday.

Petroleum price controls started in December 2010 when the maximum margin per litre was set at Sh6 at wholesale and Sh3 at the retail level. The margins remained at the same level until November 2019.

The margins remain constant whether fuel prices rise or drop as set by EPRA every month.

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