The making of a fuel shortage crisis

On April 4, news of intermittent fuel shortages amidst independent oil marketers (non-franchised dealers) in far-flung parts of the country was bubbling up.

This whilst supplies in the rest of the country stood unchanged with the majority of Kenyans unaware of what was a sprouting crisis.

At the end of the day, the energy sector regulator put out a statement attributing the shortages experienced by the non-mainstream dealers to logistical challenges which it expected to iron out in the short term.

However, the spouts of oil shortages would spread days later to huge chunks of the country including the North-Rift and Western Kenya.

Days later, the dirt of what has been now a fully fledged fuel crisis was too huge a pile to be swept under the carpet.

A collaboration of views from the Ministry of Petroleum and sources has confirmed the hoarding of product by oil marketers for reasons beyond just the non-payment of the fuel subsidy but also speculation of higher pump prices which now take effect this Friday.

Delayed payments

Delayed payments from the petrol price stabilization mechanism, commonly known as the subsidy, saw oil marketers effectively enter a go-slow interrupting supply to consumers in a bid to force payments from the National Treasury.

After admitting to the development, State officials would meet the marketers on April 7 and address nagging issues in the supply chain including the marketers’ cash flow challenges that covered the pending arrears from the subsidy.

Despite the engagement, the fuel shortages were only exacerbated to leave more questions than answers from the stakeholder engagement.

Among the solutions put on the table included the appropriation of Ksh.34.4 billion for payments to cover the subsidy arrears.

“A week into addressing all the concerns by the sector players, we are yet to witness a normalcy in retail supply of fuel, as we know it and yet, the Kenya Pipeline Corporation infrastructure is at full capacity and the country stock holding is at an all-time high,” noted Acting Petroleum and Mining Cabinet Secretary Monica Juma

Sinister moves?

Sources have previously informed Citizen Digital of a ‘plan’ to hoard fuel stocks and hold out for higher margins after the April 14 review.

Petroleum Principal Secretary Andrew Kamau shares a similar view stating supplies would have otherwise been restored on the back of the arrears settlement.

“After the assertion that oil marketers were going through financial challenges, we paid them the very next day. Unfortunately, supply was not restored. Clearly, there was another motive to tread water as the players looked to a price change today,” he said.

According to CS Juma, the feeling that this has been an artificial shortage cannot be wished away.

“We are not speculating, we know how much fuel lands and who gets what. We are not thumb sucking here,” she said.

Both CS Juma and PS Kamau have indicated that the prevailing shortages have been a product of speculation on the sustainability of the fuel subsidy and that on higher pump prices.

However, PS Kamau has doubled down on both the utility and sustainability of the subsidy fund even as the plan risks public finance pressures with the government meeting ever widening margins from the fund.

“We were collecting the money way before we had to pay any kind of subsidy in April 2021. The subsidy is like an insurance plan. You keep paying a little bit, then when you go to hospital, the insurance pays for the charge,” he said.

“We don’t know what (international oil prices) could be, but we are here to do it (cushion consumers).”

Not the first time

In June 2020, EPRA fingered OMCs for hoarding fuel stocks in anticipation of a price increase which had widely been expected in the then upcoming review to maximum pump prices.

Investigations at the time showed the holding back of stocks to independent dealers particularly in parts of Western Kenya leading to what were regional based shortages at the time.

Earlier on in May, oil marketers had obliged the then Petroleum Cabinet Secretary John Munyes to force EPRA to factor in costs related to unsold fuel stocks acquired when global prices were at their peak.

In a statement issued on the backdrop of the damning revelation, the Consumer Federation of Kenya (COFEK) termed OMCs as shameful and greedy.

What changes now?

Going solely by expectations filtering out of the Petroleum Ministry, fuel supplies are likely to be restored on the back of a crackdown on OMCs operations and the spike in fuel prices on Thursday which points to relatively higher margins for dealers.

However, should the shortages persist beyond the three days tipped for the normalisation of supplies, this could point to an even more systemic problem in the petroleum sector value chain.