Watchdog targets dealers for hoarding fuel ahead of prices review

With only four days to the next fuel prices review, oil marketers are scheming to make a killing from an expected price increase.

Marketers have been hoarding fuel products in anticipation of better prices on Sunday, attracting the wrath of the industry watchdog in the process.

The marketers are retaining cheap fuel imported during the March-April cycle when the international crude prices had hit a decade low — at one point reaching $20 per barrel in April. They are hoping to profit when the new prices are announced in the next monthly review.

The Organisation of Petroleum Exporting Countries (Opec) agreed to cut crude oil production by 9.7 million barrels on May 1, pushing up crude prices to above $40 a barrel since then. This has firmed the belief that this week’s price revision is bound to be slightly higher hence the hoarding.

Last month, oil marketers had asked the energy sector regulator to raise prices, arguing that they were holding on to earlier stocks that they had bought at higher prices. However, the Energy and Petroleum Regulatory Authority (EPRA), turned down their request, saying the monthly retail price reviews are based on prevailing international crude prices.

Under their umbrella body, Supplycorr Kenya, the suppliers wanted the ministry to pressure the EPRA and have the pricing formula altered to factor in about 40 percent old stock they claimed not to have sold in April due to the Covid-19 control measures that have seen many Kenyans at home and night travel banned.

“Demand for PMS (petrol) and AGO (diesel) in the month of April declined by approximately 40 percent. This disruption of sales has therefore led to accumulation of older priced cargoes in the system, which pose a significant commercial exposure to OMCs in the next price review. The industry will have received two imports priced April whose cost is significantly low but at the same time still holding more expensive inventory that has not been sold,” Supplycorr chairman and KenolKobil chief executive Martin Kimani wrote in the letter dated May 6.

The marketers wanted EPRA to ignore international crude prices for April, which had dropped to below $20 per barrel, and rely on March’s $35.58 that was used to price fuel last month in a move to cushion them from the effects of lowered sales.

The move would have seen motorists lose benefits from the crude oil plunge that touched a historic low if EPRA was allowed to factor in the more expensive fuel they imported in March which the oil marketers claimed not to have sold.

In the wake of the ongoing hoarding, the regulator has now warned the marketers against the illegal practice, saying they risk losing their licences or being slapped with a year’s suspension if caught in the cartel-like behaviour.

EPRA Director-General Pavel Oimeke told the Business Daily that marketers identified through the agency’s field surveillance have been hoarding diesel and petrol in various parts of the country by blocking sales to smaller dealers supplying far flung areas.

“They are mainly the major oil companies, the multinationals, who stock fuel in huge volumes hence stand to gain when the prices go up even by a small margin. It is illegal and we will take stern action on them should they continue doing that. We have also instructed Kenya Pipeline Company to alert us when they notice such practices,” Mr Oimeke said.

The regulator is set to announce the new pump prices based on the crude oil prices for April and May when the benchmark prices made huge recoveries from the lows experienced in March.

Last month, fuel prices recorded major drops with diesel falling by close to Sh20 per litre to retail at Sh78.3 per litre in Nairobi down from Sh97.56 per litre, the biggest month-on-month drop since January 2007.

Petrol prices also dropped by Sh9.54 to retail at Sh83.33 per litre in Nairobi, a development that has presented one of the cheapest months for fuels in the country.

The energy sector regulator, which relies on the international crude prices to calculate the pump prices, last month dropped pump prices by the biggest margin since Kenya started controlling fuel prices in 2010. Its base for pricing dropped from the $56.1 per barrel used in pricing for March to $35.58 used in the April pricing.

The Petroleum Act of 2019 forbids hoarding of petroleum products and the marketers’ Import, Export Wholesale and Retail of Petroleum Products Licences are given on condition that they are barred from engaging in “activities intended or likely to disrupt or interfere with competition, including but not limited to, cartel like behaviour and creation of artificial shortage of petroleum products”.