Taxpayers to pay Sh82.3b for maintaining oil reserve
Taxpayers will be required to regularly fork out $750 million (Sh82.3 billion) to maintain a 90-day strategic oil reserve in the absence of a Consolidated Petroleum Fund (CPF) that can attract finances from various sources.
Energy Principal Secretary Andrew Kamau told the National Assembly’s departmental committee on Energy that the move would be an expensive exercise the country cannot afford under the current circumstances.
“As for petroleum reserves, we need 90 days storage. Kenya needs 140,000 barrels per day.
If you calculate 140,000 by 90 by $59, you are at $750 million required to be appropriated by Parliament to these projects. That is one Eurobond.
I don’t think given the circumstances that are there in this country right now, that is something that is a priority,” he said.
Kamau said in Europe private companies are managing the strategic stocks, a practice that is proving financially prudent as they understood, the price risk management, factoring unforseen shocks to keep the cost of the commodity stable, and de-risking the public from bearing the cost of the burden.
Strategic stock
“What usually happens is that we invite private companies to store all their fuel at your port and the section that is for strategic stock you pay them a carrying cost so you pay the interest in keeping that fuel there,” he said.
To cushion the taxpayer from the huge costs, the government is setting up the CPF, which will draw its finances from budget appropriations, petroleum sector players, government securities and corporate bonds, recovered assets from proceeds of crime in the sector, grants, gifts and donations as well as monetary sanctions imposed by Energy, Petroleum and Regulatory Authority (Epra).
“The setting up, and operationalisation of the CPF requires a concise framework so as to enhance transparency and accountability.
The Cabinet Secretary is at an advanced stage of drafting the Petroleum (Consolidated Petroleum Fund) Regulations, meant to create the required framework for the fund administration,” said Kamau.
Kenyans consume 468 million litres of petroleum commodities per month, out of which Super accounts for 160 millions, diesel 220 million litres, Jet Fuel 75 million litres and illuminating kerosene 13 million litres, he disclosed.
Early in the year, the Petroleum and Mining ministry published a draft regulations 2020 to provide a plan on the setting up of the reserves.
CPF will be anchored on the Petroleum (Strategic Stocks) Regulations, 2020 that Epra has drafted and currently undergoing a public participation process.
The regulations have provided the framework for procurement, management, drawdown and replacement of Petroleum Strategic Stocks.
The draft Regulations have also provided for the identification and declaration of the Petroleum Strategic Stocks storage facilities,” said Kamau in his presentation to legislators.
Strategic Petroleum Reserves was first introduced in 2008, through the energy (Petroleum Strategic Stock) regulation 2008.
National Oil Corporation of Kenya was to procure the stock, with storage undertaken by Kenya Pipeline Company Ltd.
The initial quantity of the Strategic Stock, equivalent to 30 days consumption, was to be funded with monies appropriated by Parliament in the 2008/2009 Financial Year.
Associated funding
Subsequently, the Petroleum Strategic Reserve was to be beefed up to 90 days equivalent consumption with associated funding appropriated by Parliament.
A central reserve is considered to be more reliable than banking on marketers who are driven by the profit motive.
The present arrangement is also constrained by lack of independent storage space by marketers that has left consumers exposed to cyclic global movement of petroleum prices and other factors that may temporally disrupt supply.
