The Government is successfulyy scoring populist points with the voters by acting tough on Oil Marketers.
The Oil Majors contend they get a maximum of 10% as their margins but this includes all operating costs e.g. salaries, depreciation, maintenance, rent , etc.
Apparently the "cost" of oil is relatively low but the following adds to the cost of petrol.
- Import Duties (bulk of the added cost)
- Fuel/Road Levy (3/- per litre)
- 3/- additional cost of local refining vs importing White Oils - Petrol, Jet Fuel - directly
- Losses through forced local refining (inefficient process thus 15% lower production of White Oils). Black Oils (Fuel Oil) have a lower sale value
- Interest costs on late refunds (Kenol & Total borrow at least 11% while they receive 0% on the late refunds)
- Higher transport costs to Nairobi & Western Kenya - using lorries - since KPC spent KES 1 Billion building a HQ instead of upgrading the pipeline! The cost-benefit from an upgraded pipeline far outweighs savings on rent!
- Demurrage costs as KPC favours certain players when the ullage (storage) is allocated
- Pathetic roads means transporters charge "extra" which is then reflected in the price
- The petrol stations sell petrol at break-even prices while using their convenience stores, garages & restaurants as the profit centers
- Licenses, municipal taxes & administrative costs
- Forced imports through OTS i.e. all importers have to buy from the same vendor
- NEMA certification
The "gross profit" is KES 3-8 per litre. From this the oil marketers have to pay salaries, rent, maintenance, utilities, etc from that slim profit margin. Safaricom's gross margins are a hefty 50%! Why? Its a duopoly that government turns a blind eye to!
The additional 45/- is skimmed off by the government through taxes, no payments of interest on late refunds, KPRL & KPC's inefficiency. The law does not allow Oil Marketers to sue for timely payment of refunds!
Why aren't NOCK stations selling petrol at larger discounts than the Oil Majors?
I think the Oil Marketers in Kenya are wimps. They need to take the government head on and ask:
- Where the taxes are going?
- Why are refunds delayed by 8-12 months (thus adding 11% to the landed cost)
- Why is KPC not expanding the pipeline asap?
- Why are the roads leading to & from all major oil depots atrocious?
- Why do we need more MPs with HUGE perks while refunds are delayed?