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Saturday, December 27, 2008

Kenya Government to blame for fuel shortages

George Wachira of the Petroleum Institute of E. Africa gives the reasons for the fuel shortages.

I have echoed what he says through my sources & interest in the workings of the sector. BTW, I do not work for any of the Oil Marketers in any capacity incl PR.

1) The silly rules which 'protect' the extremely inefficient Kenya Petroleum Refinery (KPRL) are the start of the problems.

2) The favoritism shown by Kenya Pipeline Company (KPC) to 'favoured/connected' entities like Triton Petroleum (now in bankruptcy/receivership) adds to the problems.

3) Poor information (truth) management by KPC causes disruptions. The upgrades were NOT ready but KPC never told the Oil Marketers the truth so they could plan accordingly.

4) Ministry of Energy's comments on having enough fuel stocks... but WHERE are these stocks? 60% consumption in Nairobi so what use are the stocks in Mombasa?
And the PS blamed the consumers of panic buying! This is after consumers could not buy the product just days BEFORE (& during) the X-mas period which is the most heavily-travelled period for umpteen years!

5) Off-loading problems/delays due to congestion at Kenya Ports Authority (KPA) facilities.

6) Kenya Revenue Authorities (KRA) delays in verifying cargoes for quick release. Furthermore, they refuse to process refunds on a timely basis thus hamstring Oil Marketers ability to 'move' more product.

7) Kenya Power & Lighting (KPLC) did not supply 'consistent' power to KPC's fuel transfer/pumping stations. KPLC argues that KPC should have mitigated against the endemic problem like private firms do.

8) Triton was allowed to bid (& win) the OTS tender when it was financially weak. Didn't the Ministry of Energy take the safeguards to prevent this?

KPA, KPRL & KPC are all government owned entities.
KPLC is controlled (& majority owned) by the government.
KRA is a government entity.

Triton is private but the Oil Tender System (OTS) is run by the Ministry of Energy. Many strong firms e.g. Total & Kenol often opt out since the rules are onerous to the importers. This leaves 'shady' firms OR politically connected firms... and guess what happens?

9 comments:

Anonymous said...

Mr Cold Tusker,
If you can remember many Decembers there's always shortages as we near the end of the financial year. No oil company worth its salt would want to close the year with excess petroleum stocks. Consider the variation of prices and how it is difficult to value it in the books from an accounting point of view.

However if the government has its own stocks then the oil companies can buy exactly what they require without holding a lot of stocks.

Mr Cold Tusker if you have to blog then blog from a position of knowledge not a lot of hot air.


Warm Tusker

coldtusker said...

Anon 5.04: Please make LOGICAL arguments! And what 'position of knowledge' do you have?
Don't go Anon... tell us who you are... are u a government employee?

1) No (private) firm wants 'excess stocks' (except under certain circumstances) at any time during the year! Kwani they are idiots (unlike GoK employees) to keep excess stocks mid-year then sell at end of the year?

2) Regarding GoK stocks, its known as 'strategic reserves' & the CORRUPT & INEFFICIENT GoK does not have this.

3) Valuation for accounting. You are joking?
Oil firms using either one of 3 widely used methods (FIFO, LIFO or Weighted Avg). There are others but not used in Kenya.

And accounting is 'computerised' thus easy to calculate the 'value' at year end.

Please go to Strathmore for their basic accounting course. Worth every penny.

4) Oil prices vary constantly, almost every 'working' second all over the world. So what bullshit are you talking of when you say 'Consider the variation of prices and how it is difficult to value it in the books from an accounting point of view'?

ACCOUNTANTS know how to value the stocks at year end & it is not 'difficult' as long as (a) the quantities of the products is known (b) the records are kept of purchases & sales (c) there is no hanky-panky aka theft.

coldtusker said...

Blogging is rewarding (psychologically not financially) but some comments get my goat...

Anon 5.04 makes stupid (yes, I called them stupid except for 'government oil stocks') comments. Asks me to 'blog from a position of knowledge' and yet can't grasp accounting 201.

My accounting lecturer at Strathmore - at the time - was the Finance Director of a Oil Marketer. He used examples from his field.

So when Anon 5.04 talks of 'difficult to value'... puhleeze...

Yes, poor records will screw you up BUT any half-decent firm will have these...

MainaT said...

Anon-why make comments anon-sly?
I assume you are talking about the differential between opening and closing stock? In which case, it'd make sense for oil-ers to want lower closing stock (because of the variance in prices)...

CT-according to this DN article http://www.nation.co.ke/News/-/1056/507830/-/u0pbhc/-/index.html, the oil firms aren't buying stock as a tactic to keep prices high...

coldtusker said...

MainaT: Oil Marketers deal in an 'almost' end product thus what is crucial is NOT what the variation in price between their stock levels are BUT replacement cost.

Many firms used LIFO since it is often the best (not perfect) indicator for what it will cost to REPLACE the stocks just sold.

coldtusker said...

MainaT: I have little regard for business reporters in Kenya. Poor or no research!

1) Is DN referring to fuel stocks in Kenya in general or specifically in Nairobi (60% of consumption & focus of shortages)?

2)Mombasa KPC/KPRL depots to Nairobi takes 2 days from uptake to delivery by road (BTW, cost of transport by road is MUCH higher vs a pipeline).

3) Kenya has a limited number of fuel trucks primarily for short-distance deliveries. A truck can hold a max of 25,000 litres. Pumping can move 440,000 liters/hour.

So how many trucks are needed to get 440,000 litres/hr to Nairobi?

Thus fuel stocks in Mombasa is NOT equivalent to fuel in Nairobi/Thika/Limuru/Nyeri.

4) Most fuel pumped to Eldoret is exported. This fuel is 'bonded' & not available for local consumption unless KRA approves - a real complicated process. Fuel for export is (often) ALREADY purchased by 'foreign' oil marketers.It does not belong to Kenol (Kenya) or Shell (Kenya) or Total (Kenya).

5) So... if Oil Marketers refusing to collect fuel then why should NOCK stations face shortages? They are 100% gov't owned. Surely, they can have their fleet continuously deliver fuel to NOCK stations?

MainaT said...

CT, re-reading the article, it says that KPC has pumped 10m litres of fuel (of variuos types) and this is ready for distribution from Nai. The head of the oil firms' assoc was apparently asked to comment but was u/v.

My bigger pt is that I doubt the oil firms are the innocents you tend to paint this in this situation.
Worse for them is the fact this crisis will lead to GoK bringing in some controls. That I disagree with unless there is clear evidence of cartel-like behaviour among the oil firms.
At the day, crude oil prices are down by 2/3 from where they were in June, and by any measure, fuel prices at the pump must at some pt reflect this drop in the same way they reflected the initial rise. Ama?

coldtusker said...

MainaT:

1) 10mn liters (of what products?) pumped to Nairobi. Was it available for distribution in Nairobi?

2) Product pumped to Eldoret is mostly for export. Was any of the Nairobi product re-pumped to Eldoret leaving less for Nairobi?

3) What is Nairobi's historical consumption for December? 2007 was quiet coz of elections. Folks stayed home to vote but 2006 & 2007 should be a good indicator.

4) Where is NOCK?
Blame the multinationals all you want BUT why didn't NOCK have enough fuel?

Anonymous said...

i love this blog...all intellect and so damn informative.