Oil dealers in surprise turn to support price controls (Kenya)


By Neville Otuki | Business Daily, Kenya October 7, 2017

Oil marketers have asked the government to retain price controls on fuel in a surprise move that looks set to delay efforts to open up the industry for competition.

The companies, represented by the Petroleum Institute of East Africa (PIEA), have apparently swapped positions with the government which seven years ago introduced the price caps in an effort to tame exploitation of consumers.

Under the caps, the Energy Regulatory Commission (ERC) reviews pump prices every month based on fluctuations in global crude oil prices, freight costs, the forex market and tax changes.

The oil marketers say the controls have worked for them, making their revenues predictable.

“We would rather have the controls in place as we can now predict our revenues and use the predetermined cash flow to secure bank financing and attract investors,” said PIEA chairman Powell Maimba.

The lobby previously opposed the price controls and advocated for price based on market forces.

Energy secretary Charles Keter this week announced plans to remove the controls as recommended by a recent study commissioned by the ministry.

Mr Maimba said Kenya’s petroleum market has generally thrived under the price controls, especially with stable supply that handed consumers lower unit prices of imports ordered centrally in bulk.

Discounts

Removal of the caps would mean marketers start buying smaller cargos separately, denying them huge discounts and pushing up costs.

Private sector experts also objected to the return to a free market, saying removal of caps would favour large marketers who will use their reserves to dictate prices.

“Despite having independent dealers, mostly locals owning 60 per cent of petrol stations (2,307) in Kenya, they are still dependent on the big boys from who they buy fuel to resell,” said James Mwangi of Kurrent Technologies, an energy consultancy.

Only four marketers — Kenol Kobil , Vivo, Total  and Gulf Energy — control 53 per cent of the overall market share, PIEA data shows.

The controls were introduced in December 2010 to protect consumers from high retail prices which were blamed on cartel-like behaviour among marketers.

Dealers enjoy margins of Sh7 a litre for wholesale and Sh3.89 for retail but have recently been pushing the ERC to raise the margins, citing higher costs.

Currently, the Energy ministry awards one oil marketer the right to import petroleum in bulk every month on behalf of the entire industry through the open tender system (OTS).

To stop price controls, the ministry will have to phase out the tender system, forcing dealers to source cargo separately.

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