Blog Archive

Wednesday, May 04, 2011

Petrol Shortages in Kenya - May 2011 Part 2

This is is a follow-up blog post to questions asked by StartupKenya
See original blog post here

1. Why has the unnamed OMC hogged ullage at KOSF, how is it benefiting at this point?
There is enough petrol in KPC storage tanks but it belongs to the Politically Connected OMC. When there is a shortage, whoever has the product has pricing power. The hogged ullage is not an OTS shipment but non-OTS so they can charge whatever they want to the other OMCs.

2. What inside info is this that the OMC benefitted from, (3) and how did they benefit?
KPRL had problems which PCOMC was aware of so they could order petrol ahead of time. They had material information others did not. There is ship waiting to discharge petrol but the PCOMC cargo got in earlier thanks to information they had prior to others.

4. Where is NOCK in all of this, don't they exist to prevent exactly against this kind of scenario?
Beats me! NOCK is also an OMC & may be faced with the same constraints as the rest [Total, Engen, Shell, KenolKobil, etc]

5. Why is the shortage only in Nairobi, I know for a fact rift valley has no problems.
Fuel is (primarily) transported via KPC's pipeline to Nairobi & Eldoret. Other options are by rail & road.
Nairobi is a major off-loading point for Nairobi & Central, the largest users & use are in this region.
Eldoret supplies Rift Valley & export markets. There may be 'old' stocks in the pipeline between Nairobi & Eldoret. Or the level of usage of petrol is lower [vs stocks held by OMCs] in RV.
Petrol is being transported by road, as this moment, to Nairobi but these lorries take 24 hours since they driven at slow speeds. Or should be! In addition, they also supply all the towns along the way.

6. How has ERC shown some spine, what have they done?
Unlike kiraitu who blamed everyone else [meaning the OMCs] but his ministry, ERC did not blame OMCs & said so.

7. So we can blame KPRL then?
Yes. It is an inefficient refinery so produces both lower grades of White Oils & lower % of White Oils. It produces more Tops [Black Oils] than it should & which needs to be exported. In addition, it produces more Kerosene than Petrol. Note that Petrol is better suited for cars.

8. Isn't diesel and kerosene also refined from crude, how come there is no shortage of these fuels?
The process of producing fuels from crude oil is Fractional Distillation. An efficient refinery will produce more higher value fractions [White Oils e.g. petrol] vs Black Oils. KPRL is inefficient.
Diesel - There was a large consignment ordered/imported recently so there is enough in the system at the moment.
Kerosene - See KPRL explanation. It produces more Kerosene than Petrol. Also Kerosene is imported as well, if needed.

9.and most importantly... WHO exactly is benefiting the most from this... since this is the person we can most likely blame.
Most likely the PCOMC's owners & partners.


startupkenya said...

Thanks for taking the time to respond so comprehensively to my questions. Wonderful Stuff! It all makes sense now.

Only one question remains, who is the PCOMC? Name and Shame.

Limo said...
This comment has been removed by the author.
Young Contrarian Investor said...

One word: The oil sector stinks of corruption and impunity...thats all

Waithaka said...

Frankly, We must applaud your efforts in trying to make clear where the problem is on the fuel crisis we have. It takes time and energy.

However, we must all dig in until the mysterious company that has clogged the systems with fuel is known. Secondly, Kirairu Murungi Must fix this mess by coming up with a workable and efficient system. He Must clean the corruption & inefficiency of these parastatals under his Ministry. (KPRL, KPC, NOCK, ERC etc)
Kiraitu has to read a rioting act to all Oil Markers to behave or risk loosing their licences.
If he is unable or unwilling, He should be fired. But does Kibaki have the balls to fire his longtime friend? I don't know, But He MUST.

Otherwise I can guarantee this will not be the last that we shall see or hear on the fuel crisis.

KW said...

Good series of posts on oil industry and the troubles we are facing. It is clear that many of our problems are caused simply due to inefficiencies. A few more questions:

- Is OTS an effective method of importing oil for the country? From quality, quantity and cost perspective?

- As I understand it, our refinery is propped up by GoK regulations. Does this mean it would be more efficient (and/or cheaper) for each OMC to import it's own refined product? If so, does the benefit of refining a certain quota locally outweigh the negative from a big picture point of view (i.e. for the country).

- Are there any penalties applicable to importers/OMC's who hog storage?

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