Fuel scarcity looms as oil marketers demand Sh65b
Kenya is staring at another round of fuel shortage after it emerged that the government has not compensated oil marketers for stabilising the pump prices for the past three months.
Industry lobby group, Petroleum Outlets Association of Kenya (POAK) has disclosed that National Treasury owes oil marketing companies (OMCs) an estimated Sh65 billion. This, it warned, could trigger a crisis as OMCs might struggle with their financial obligations, especially when making fresh imports.
For over a year, the government has been slashing oil marketers’ margin at the pump through the fuel subsidy scheme to cushion motorists and households from the volatile global fuel prices then compensating them later.
However, this has lately turned too costly for the exchequer, who have now failed to remit compensation for three pricing cycles since June.
“The petroleum industry is owed more today than ever. A bill of Sh65 billion. This is a sizable percentage of the industry market cap (capitalisation), large enough to cause a supply disruption,” POAK, whose members control almost 50 per cent of Kenya’s oil retail market, said in a social media post.
Support fuel kitty
This comes even as the government left fuel prices unchanged for two months in a row after injecting additional Sh16.68 billion in July to support fuel kitty, giving households a short reprieve.
Delayed payment and amount payable has previously been the focal point of fuel crisis with both the government and oil players blaming each other. Between March and April, the country experienced acute fuel shortage as oil majors diverted their products to the external market in protest of over Sh34 billion compensation.
Protest by POAK is seemingly a move by the oil companies to compel immediate compensation before the country transition to the next administration in coming days following the concluded elections.
Fuel prices are set to be the leading headache for the incoming government which will be under pressure from the International Monetary Fund (IMF) to scrap the subsidy scheme amid high cost of living.
The government has been spending an average of Sh7.65 billion every month to subsidise fuel and contain public outrage over the high cost of living, highlighting the adverse impact of the subsidy on the country’s revenues. Removal of the subsidy is one of the conditions from the IMF under a $2.34 billion budget support scheme that will run for 38 months.
The fuel subsidy remains unsustainable and the Treasury is planning to completely terminate it by the end of this year. The amount the government pays oil majors has increased nearly every month due to surges in global crude oil prices.
Of the Sh65 billion arrears currently demanded by OMCs, Sh39.6 billion is for the June-July and July-August pricing cycle, while the Treasury is expected to pay the outstanding Sh26 billion for the current phase lapsing September 14, the highest monthly fuel compensation.
This month, record-high compensation will be more on per litre of Kerosene consumed than diesel which widely drives Kenya’s manufacturing sector. Oil majors will be paid at a rate of Sh74.17 per litre of Kerosene compared to the Sh53.19 rate used last month.
Cumulative spending
Diesel compensation will be at Sh66.17 per litre of diesel while petrol will attract Sh54.91 per litre compensation. The cumulative spending on diesel compensation is, however, set to remain high due to larger volume consumed monthly.
