EXPERT COMMENT

Fuel shortage crisis: We are playing with fire

Talking to oil marketers, the issue appears to be the structure and the functioning of the fuel subsidy

In Summary
  • The current shortages boil down to an archaic fuel importation structure
  • Fuel determines whether and how we—critical goods and services--move from point one to another
A business man sells jerrycans to motorists who are queuing for fuel along Kisumu-Nairobi road on April 12, 2022.
A business man sells jerrycans to motorists who are queuing for fuel along Kisumu-Nairobi road on April 12, 2022.
Image: DANIEL OGENDO

Any economist will tell you that the current Ping-Pong between Treasury and oil marketers is not child’s play.

It is like we do not realize the critical role that fuel plays in an economy.

Fuel determines whether and how we—critical goods and services--move from point one to another, fuel determines what we eat—anything that is manufactured or cooked requires fuel, fuel determines how we see—electricity generation.

Basically, without fuel, our very own existence as currently structured will crash.

So what is the issue with the current supply shortages?

Talking to oil marketers, the issue appears to be the structure and the functioning of the fuel subsidy extended by the treasury to cushion the common mwananchi from the adverse effects of the rising fuel prices globally.

While it was well-intended, the fuel subsidy seems not to be reaching them in time to cover their overheads such as transportation of the very oil to the various petrol stations for the eventual fuelling by the end-user.

Government bureaucracy from the time funds are signed off to the time funds land in accounts required takes time and someone seems to have acted either late or simply those funds were not available to be released in time.

The current shortages boil down to an archaic fuel importation structure that gives an upper hand to oil marketers to play as they wish and decide the level of margins with each importation within certain parameters and not free-market forces.

We got here because of a lack of foresight as the biggest economy in East Africa to plan for any eventualities of any disruptions to the oil supply chain by proudly having only one month of strategic oil reserves.

To address it in totality, do away with the subsidy, do away with the heavy taxation on oil, put structures to ensure no oligopoly in the oil industry pricing trends and let market forces dictate the prices at which fuel retails.

Morris is an economic consultant

A business man sells jerrycans to motorists who are queuing for fuel along Kisumu-Nairobi road on April 12, 2022.
A business man sells jerrycans to motorists who are queuing for fuel along Kisumu-Nairobi road on April 12, 2022.
Image: DANIEL OGENDO