Fuel shortage looms despite low prices

A fuel shortage is looming in areas serviced by independent dealers who source their supplies from multinational wholesalers. The dealers say the multinationals have been withholding or delaying their orders for supply of Super petrol since July 14 when the Energy Regulatory Commission announced a Sh9 cut in retail prices.

Only Total Kenya was releasing Super petrol to the small suppliers yesterday at a wholesale price of Sh106 a litre for them to sell at the maximum recommended price of Sh108.5 in Nairobi. The independents complain that the pricing makes no business sense since the Sh2 margin is being spent on transport and other operating costs thereby leaving them operating at a loss.

The chairman of the Kenya Independent Petroleum Dealers Association, Joseph Karanja, said due to this, majority of his members are reluctant to buy other products including kerosene to avoid making losses because the profit margin is too thin. The price of Super in Nairobi dropped by Sh9.21 to retail at Sh108.46 while Regular was cut by Sh11.70 a litre to retail at Sh105.76 and Diesel cut to Sh97.50 by shaving off Sh8.08. The ERC allows a maximum wholesale margin to be retained at Sh6 a litre.

According to Karanja, wholesalers are offering Kerosene at Sh73 while the maximum authorised retail price is Sh74 in Nairobi. This means the small retailers will either have to sell at a higher price to cover their costs or not stock it at all. “Some of our members may stock the products, but must either absorb the costs to keep their loyal customers or sell at higher prices at the risk breaking the law,” Karanja said. “We move over a half of the total volumes consumed in the country, almost exclusively servicing the rural areas as multinationals concentrate on major towns and highways which means the prevailing situation leaves a half of the consumers without supplies”.

Karanja said they are facing a double loss because the oil multinationals seem to have had prior knowledge of the price cut before it was announced on Saturday and disposed of unusually large volumes of oil to small dealers who will now have to bear the costs. "ERC must include the wholesale price caps for us to meet the demand without defeating the sole purpose of introducing regulations. For it to make business sense, most of us will have to close shop or sell above the recommended price," said Karanja.

Currently the wholesale prices are not regulated by the ERC, but the independent distributors and retailers have to access their products at prices fixed by competitors who import through the Open Tender System. Karanja said the price cuts by the ERC could have been brought down further taking into account the world oil prices drop, the stabilised Shilling and reduced inflation.

"We are being priced out of the market by the big multinationals slowly but surely while the ERC looks the other way," said Henry Mbaabu, managing director of Interlink Petroleum company. "We want the whole supply system addressed by the regulator with a formula that will determine reasonable wholesale prices for small dealers who offer the crucial services deep into the rural areas and informal settlements where no large players wish to venture".

Mbaabu said the benefits of the price cuts will not be enjoyed by majority of the rural customers who will be forced to travel long distances and at extra costs to buy oil from the nearest large operators. Such consumers are unlikely to be serviced by the small dealers in their neighbourhoods who are likely to cut their losses by not stocking.