What Caused The Fuel Shortage In Kenya?

by Business Watch Team

Kenya has been hit by one of the worst fuel shortages in history. Kenyans have been angry about it and so many things have been said. What has come out is that many Kenyans seem to be clueless about what exactly caused the shortage of fuel in Kenya.

First, the Government of Kenya manages the retail & wholesale prices of petroleum fuels through the Energy Petroleum and Regulatory Authority (EPRA). What Kenyans don’t know is that in the last 6 months, global prices have been rising and GoK committed to keeping domestic retail prices lower by instituting the “Price Stabilization Fund.”

That fund was established without a proper legal mechanism and this is among the issues that were raised in parliament last year.

Because the fund had 0 reserves, GoK agreed with marketing firms that they should keep the retail prices below “real” prices, based on the EPRA formula and that they would be refunded that amount promptly.

It seems that GoK has failed to provide that payment to the marketing firms, implying that they were selling fuel at a cost below their determined prices and hoping for their margins and operating costs to be covered by their IOU from GoK.

Now, the arrears have exceeded Kshs 10 B and have been due for 3 months, thereby affecting the cash flows of the marketing firms. For that reason, they have been reluctant, and perhaps unable, to take stock and sell fuel with arrears still held by GoK and to accrue further arrears by selling fuel to Kenyans.

So while we see this as merely GoK not making its payments promptly, it is a pointer to the overall financial position and also that it has instituted a “price management” mechanism that it can ill afford. Similar to the Kenya shilling, there’s no doubt that sooner than later, this experiment with a “Stabilization Fund” will have to be dropped.

But on an unrelated point, isn’t it curious that parliament has recently considered legislation on “prompt payments law” when the GoK is itself violating its promise to pay?

But why are Kenyans turning this into castigating some players? Some, ignorantly say that Rubis is to blame for the fuel shortage. How? How is Rubis to blame? Is Rubis just a player like any other player in the sector? What have they done?

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