Revealed: The Sh20bn bill that caused nationwide fuel crisis

fuel shortage Eldoret town

A man with jerricans waits to buy fuel in Eldoret town on April 3, 2022 amid a biting shortage.

Photo credit: Jared Naytaya | Nation Media Group

A dispute over the actual amount that the government owes oil marketing companies under its subsidy scheme is one of the factors prolonging the fuel shortage crisis.

While officials cite Sh13 billion, oil companies say they are owed more than Sh20 billion. The delay in paying the firms has squeezed their cash flow and paralysed their operations.

Some Sh8.2 billion was released to the companies on Monday to settle part of the debt.

But the deal between the state and the oil firms is largely an informal cooperation, with no law to inform payment timelines or how much it should pay. The arrangement largely thrives on goodwill between the parties.

This means that oil firm executives eschew being quoted publicly on the matter in order to avoid antagonising the state.

“The government owes more than Sh20 billion,” said an executive at one of the smaller oil companies.

Explaining delays in paying oil firms, Petroleum Principal Secretary Andrew Kamau said this week that the government was still assessing how much it owes and the process could take more than a month.

Another challenge is that some oil marketers often hoard their fuel, waiting for the monthly reviews of prices by the Energy and Petroleum Regulatory Authority (Epra) and expecting prices to rise.

This means that they sell at higher prices stock that they bought at lower prices, making it harder for the government to assess what to pay them in subsidy money.

“Epra sends to us the calculation of the actual price and the price that the government provides to citizens. Once that happens, there has to be an audit process to make sure that we are paying the right people,” said Mr Kamau on NTV.

Former Galana Oil Kenya managing director Powell Maimba told the Nation the subsidy dispute and delayed payments prompted large oil companies to reduce the stock they buy through the Open Tender System (OTS) due to reduced cash flows.

He said smaller oil dealers, who form 25-30 per cent of about 2,762 retail stations in Kenya, have unpredictable patterns of buying fuel wholesale from the larger dealers and frequently change where they buy depending on the prices on offer.

This means that as global fuel prices continued to rise, large dealers could not take the risk of buying large stocks without a guarantee that small dealers would buy from them. So they bought only enough fuel for their contracted buyers.

“This meant that the small oil firms, whom you cannot rely on that they will buy from you, now had nowhere to buy fuel. This is a situation that has been developing over months,” Mr Maimba said.

In a supplementary budget, President Uhuru Kenyatta on Monday approved a Sh34.4 billion allocation to the Petroleum Development Levy Fund (PDLF) to stabilise fuel prices. It was hoped that this would help swiftly resolve the fuel shortage crisis.

Independent oil dealers, under the Petroleum Outlets Association of Kenya (POAK), yesterday met with PS Kamau to iron out issues that are preventing small dealers from getting fresh fuel supplies.

“On the immediate issue, we have agreed (that) the government will work to ensure fuel is available for independent players. This will ensure fuel is available in the whole country, including the interior parts of the country,” POAK said in a statement.


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