Oimeke: Firms hoarding oil will have their licences withdrawn – Daily Nation

Energy Regulatory Commission Director General Pavel Oimeke speaks during a media briefing at Crown Plaza Hotel, Nairobi, on July 11, 2017. The commission is championing the use of renewable energy.

Energy Regulatory Commission Director General Pavel Oimeke speaks during a media briefing at Crown Plaza Hotel, Nairobi, on July 11, 2017. The commission is championing the use of renewable energy. PHOTO | NATION MEDIA GROUP

This week, Pavel Oimeke, director-deneral, Energy and Petroleum Regulatory Authority (EPRA), responds to your questions.

1. The current formula for setting fuel prices has been around since EPRA started implementing price controls. Don’t you think now is the time to review it, taking into account factors that may not have existed when it was first developed? Githuku Mungai, Nairobi

The formula was reviewed in 2018 during the Cost of Service Study of the Supply of Petroleum in Kenya. EPRA implemented the study recommendations in November last year. The study also proposed an annual review of the pricing formula components, and a five-year review of the structure and principles of the pricing framework, which EPRA ratified.

2. We have seen a highly publicised crackdown on illegal liquefied petroleum gas (LPG) refilling, with evidence on some of the most notorious points, only to see them back in business within a day. Is EPRA this helpless in resolving this problem? How do you convince the public that we don’t have special interests taking over? David Thiong’o, Kabete

The authority conducts enforcements on all facilities to ensure continuous compliance. Facilities found non-compliant are either warned by EPRA or charged in court as provided for in the law. The authority is therefore committed to ensuring all cases are dealt with within the precincts of the law. We welcome any information on illegal activities alluded to in your question for immediate enforcement action.

3. Many petrol station operators (dealers) have complained against multinationals unilaterally reducing fuel margins over the last several years, but EPRA has never taken any action, especially since these margins are regulated by law. The feeling is that EPRA is heavily biased towards the multinationals. What do you have to say to this? Idriss N. Mohamed, Machakos

The Energy (Petroleum Pricing) Regulations, 2010 empower EPRA to set the maximum allowable margins for petroleum wholesalers and retail stations. However, EPRA is aware of parties operating franchised petroleum retail stations where commercial contracts are negotiated and signed with franchise owners. EPRA is usually not privy to such contracts and they vary from one franchise holder to the other. Commercial operations, including profit share, in such cases are tied to the contract.

4. Recently, there have been shortages in petroleum products brought about by hoarding, which was attributed to oil-marketing companies holding on to the products in expectation of increased prices. The oil marketers have also been opposed to price capping by the authority. What are you doing to stop this illegal activity that has had negative effects, especially on independent dealers? John Tamar

The Covid-19 pandemic has seen businesses across the globe experience a downturn, and the oil industry has not been an exception. Here in Kenya, the pandemic brought about uncertainties in local and transit petroleum demand, making import planning, especially for May and June, cumbersome. It was a tough balance between a demand depressed by as much as 50 per cent for super petrol and diesel and 90 per cent for Jet A1, and the need for security of supply. As world economies reopened towards the end of May, local and transit demand suddenly shot up to almost pre-Covid-19 levels.

These supply dynamics have presented a tough situation for the oil industry in Kenya and the region both in cost and availability of supply, but I am happy to note that stability is almost being achieved.

Nevertheless, EPRA has directed Kenya Pipeline to reinstate ageing charges on petroleum companies that for various reasons store petroleum products in the system for extended periods. EPRA has also been closely monitoring the stocks held by oil marketing companies in comparison to the minimum operational stocks required by law, and where hoarding is proven, the culpable parties will have their licences withdrawn.

5. As the regulator, please give us a status update on what is happening on the oil in Turkana. Can we continue to put our hopes in the oil? What of the upheavals that faced the trucking as well as the huge bills Tullow has slapped on the government? Francis Njuguna, Kibichoi

The government confirms that the resources in Turkana will be developed for the benefit of the people of Kenya. The current challenges with the contractor are being dealt with. The government is in the process of auditing the costs and processes of Tullow and its partners and has the right in law to reject non-qualifying costs. The regulator will play its part to ensure the law is complied with.

6. There have been many complaints to EPRA that oil-marketing companies are under-delivering products to their dealers. Most Kenyan dealers, especially in Nairobi and central Kenya, receive between 1 per cent and 1.5 per cent less fuel than they pay for, which is not only unethical, but runs them out of business due to losses. Since these complaints have been brought to EPRA’s attention, with the evidence, what are you doing to protect dealers? Faith V. Masaba, Nairobi

EPRA is in collaboration with the Department of Weights and Measures to ensure harmonisation of petroleum volume measurement methods at the loading depot and the delivery station. Use of different volume measurement methods, for example meter versus dip stick, between two points of petroleum transfer may be abused by persons handling the products, causing unexplained losses.

7. On the face of it, Total Kenya’s Young Dealer Programme seems to be good corporate social responsibility. But there have been numerous complaints to EPRA that the programme is being used to exploit Kenyans as most of these young dealers are overcharged on various items and service. Documentary evidence has also been provided to EPRA on the matter, but the authority has done nothing about it. What is EPRA doing to safeguard the rights and interests of the young dealers? Richard Mwangi Kariuki, Ngong

EPRA notes that the Young Dealer Programme involves a commercial contract negotiated and signed between the young dealer and the company. The contract becomes binding to the parties once signed, making it difficult for EPRA to intervene during contract execution. It is thus very important for potential retail station operators under a franchise model to critically examine the contents of contracts, including the margins to be given in light of EPRA’s maximum allowed margins, before making commitments.

8. Much has been said on the need for ordinary Kenyans to access clean cooking energy, especially LPG. However, this has not come to fruition since every time this draws near, impediments arise, including taxes and litigation. Will ordinary Kenyans ever access this energy anytime soon? What hinders this dream? Komen Moris, Eldoret

Despite all the challenges, EPRA is confident that the country is on the right path towards full use of clean cooking energy. This assertion is backed by LPG consumption data, which shows that the per capita consumption has increased from 2.2 kilogrammes in 2013 to 6.4 kilogrammes in 2019, an increase of 191 per cent.

9.How will you tackle the rampant theft at fuel depots? Why are the oil-marketing companies who are responsible for delivering it not incurring the same fuel theft losses? Why should dealers incur the full losses upon delivery? Peter Wahome, Ridgeways

As earlier mentioned, we are working towards harmonisation of petroleum volume measurement methods between the depot and the station. This will help to remove loopholes associated with the current system.

10. There is a tremendous amount of intimidation by oil multinationals towards their Kenyan dealers. Just last week, in order to profit from the expected price increase in petrol, a multinational refused to sell (or supplied minimum quantities) to their Kenyan dealers and wholesalers. This is anti-competition and EPRA has not slapped a single one of them with any penalties despite being given evidence. Why is this? Jocelyne Wamwai, Nairobi

EPRA constantly evaluates the stocks held by oil marketing companies to assess compliance with minimum operational stock requirement. If a marketer is found to be overstocking and not releasing the product to the market, they will be deemed to be hoarding and sanctioned accordingly. From EPRA’s assessment, no marketer has so far been in breach. The quantities that were being released into the market at that time were meant to ensure security of supply in the entire country in light of the lean petroleum stocks in the country then.

11. What are you doing to promote renewable energy and energy efficiency, ensure that every Kenyan family can choose to go solar and cut their energy bills, and that Kenyan communities have the tools they need to tackle air pollution and climate change? Raphael Obonyo, Nairobi

EPRA promotes the uptake of renewable energy and energy-efficiency technologies using three approaches: product and system quality assurance; public education and sensitisation; and enforcement of the Solar PV and Energy Efficiency Regulations. The goals of these three approaches are achieved through the licensing of personnel, carrying out media campaigns and holding workshops and seminars. EPRA encourages use of solar home systems for Kenyans who are not on the grid.

EPRA is concerned about indoor air pollution arising from use of kerosene and firewood as a cooking and lighting fuel. To mitigate this, use of LPG is encouraged by licensing LPG filling plants, LPG wholesalers and retailers. We also contribute to development of standards for clean cooking solutions in the country, including bio-ethanol and improved biomass cook stoves.

12. In March, EPRA and the Consumers Federation of Kenya (Cofek) hosted public forums on the new LPG regulations to sensitise the public on them. What is EPRA’s deal with Cofek that they hold joint mobilisation events? Why do you hold the events in big hotels when you could easily use local administrators and convene the meeting in a public hall to save on costs? Dan Murugu, Nakuru

The Energy Act, 2019 mandates the authority to protect consumer, investor and stakeholder interests. The collaboration with Cofek is informed by its goal of defending, promoting, developing and pursuing consumer rights as guided by Article 46 of the Constitution and the Consumer Protection Act, 2012. Working with Cofek is part of a pilot scheme to establish a robust consumer engagement strategy. In future we aim to bring on board more stakeholders, including but not limited to county governments. Your suggestion of holding the forums in public halls is welcome and we aim to deploy this idea in upcoming meetings.