Fuel stations are grappling with stock-outs due to inability in evacuating product from the system of Kenya Pipeline Company (KPC) amid mounting cash-flow woes exacerbated by delays in subsidy payments estimated at Sh17 billion.
Major dealers mainly Vivo Energy and Rubis Energy Kenya and dozens of small marketers across the country, have since early last month been grappling with stock-outs, triggering panic buying from consumers wary of missing out on fuel.
Oil marketers are required to pay all taxes upfront before they can access fuel in the KPC system. However, the cash-flow hitches have made this difficult given that fuel has also become costly, further hitting marketers.
Fuel prices significantly jumped last month, with landed costs rising by up to 105 percent translating to costly product which the cash-strained oil marketers are struggling to pay for, in order to restock their stations.
Industry insiders and government officials owned up to the nightmare of the delayed subsidy payment, saying that this has triggered a cash-flow nightmare that has made it increasingly difficult to purchase the expensive fuel.
For example, the State owes oil marketers Sh6.042 billion for the monthly cycle that ended on April 14, There is also verified but unpaid bill of Sh1.7 billion and a further Sh9 billion awaiting verification.
‘A bigger problem which we must own up to as a government is the subsidy. As you are aware, the payment has delayed and this has a big impact on the cash-flows of oil firms and as a result most of these marketers do not have money to pay for the product,’ a top State official in the energy sector told this publication.
Vivo Energy tops the subsidy arrears for the monthly cycled that ended April 14 with an unpaid bill Sh1.47 billion, followed by TotalEnergies Marketing Kenya at Sh737.57 million and Sh534.75 million for Rubis Energy Kenya.
‘…we cannot say that there is hoarding but rather what we have is a cash-flow problem, remember the steep subsidy applied in the current cycle,’ said an industry executive.
‘The subsidy has not yet been paid, the industry does not have money to pay for the costly fuel in the KPC system. The marketers are bleeding, for you to access fuel, you must pay taxes upfront, it is tough,’ added the executive.
Oil marketers are required to pay taxes upfront before lifting product from the system of KPC.
This has turned out to be an uphill task given that the industry is smarting from a hole of more than Sh6 billion in the current monthly cycle, that lapses on Thursday midnight.
The stock-outs had earlier fueled fears of fuel hoarding. Fuel hoarding mainly happens when oil marketers anticipate a significant rise in pump prices and thus withhold fuel days to the gazettement of the new prices.
Oil marketers have since found it increasingly difficult to pay for the product and taxes in order to lift it from the system of KPC, triggering stock-outs that have also hit oil the three oil majors, Vivo Energy, Rubis Energy Kenya and TotalEnergies Marketing Kenya.
Prices of diesel, kerosene and petrol significantly rose in March, meaning that oil marketers need more money to access their nominated quotas.
For example, landed costs (price of product and transport costs) of kerosene surged 105.15 percent to $1,311.93 (Sh170,655.85) per cubic metres in March from $639.48 (Sh82,774.2) for the same quantity in February.
Landed costs of diesel jumped to $1,073.82 (Sh139,68.50) per cubic metres in March from $636.45 (Sh82,382.08) for same quantity in February while those for petrol rose to $823.87 (Sh107,169) per cubic metres from $582.11 (Sh75,348.31) for same quantity in the same period.
Industry sources warn that the woes could worsen in the coming days if the State does not pay the arrears soon and further extends the subsidy in the new prices that will take effect from Thursday midnight.
The cash-flow woes look set to deepen after the government opted to extend the subsidy in the new prices and which will be in place for a month to May 14.
The State was forced last month to deploy a subsidy of Sh108.10 per litre of kerosene and Sh23.92 billion per litre of diesel. The steep subsidy helped prevent prices from hitting Sh260.88 and Sh230.76 for kerosene and diesel respectively. Under subsidy, oil dealers retain the pump price announced by the Energy and Petroleum Regulatory Authority.
The government then pays them the additional cost, with the money drawn from the Petroleum Development Levy (PDL). PDL is charged at the rate of Sh5.40 per litre of petrol and diesel. The rate was hiked from a previous Sh0.40 per litre from July 2021 as the State sought to build bigger buffers for the subsidy scheme.