Fuel adulteration: An imminent threat to the country’s economy

Fuel adulteration: An imminent threat to the country's economy

Fuel energy is fundamentally the backbone to any economy in the current world where the sprouting of industries is unabated. It is this reason that the demand for petroleum products has skyrocketed than ever before. Kenya, which recently took pride in possessing an oil reservoir in Turkana, happens to be a major supplier of refined petroleum in the East African region, drawing huge returns from the industry annually.

Nonetheless, this seems to be likely a theme of the past after the major developments of the adulteration of the fuel being exported started hitting the country’s major markets hard.

It is true that the local market for fuel has incredibly expanded and grown, thanks to the emerging new industries and expansion of commuter industry across the country including the bodaboda business in just five years. Notably, according to the Energy Regulatory Commission, the number of petrol stations has grown from 1,382 to 1,707 (23%) while the marketers have doubled from 47 to 87.

In the year ended December 2015 alone, Kenyans consumed 3.9 billion litres of diesel and petrol. It should be noted though how gross this menace of cartels working in the commission of this vice of fuel adulteration has hurt the market not only locally but also regionally. When the ERC launched its retailer self-test kit for oil products last year in September, we witnessed a mere black listing of close to 56 petrol stations countrywide caught having not complied with the stipulated regulations with regards to adulteration of fuel.

Therefore, much as there is a lot to explore on the growth of the fuel market in the country, it is surrounded with inherent fraud system of selling impure fuel including that which is meant for export. Adulteration which previously has been noticed in locally consumed products including food stuffs has now widened to the exports, something that should compel the government to move with speed to curb it to avoid any impending loss to the economy that could include retraction in revenue inflows and loss of employment to locals.

After tea and cut flowers, refined petroleum forms 13% of Kenya’s total exports ranking third largest export commodity. This is not only enough to raise eye brows when Kenya loses major regional market, but to also raise pertinent questions on what could be hurling this sector to penury and what the fix should be to revive the lost markets.

The unscrupulous sellers of fuel from Kenya, who have found a way of unrightfully increasing the volumes of the fuel they export by adding kerosene, have been noticed by their buyers in Rwanda, Burundi, DRC and lately South Sudan. It led to the desperation move by the government in September this year, through the Energy ministry to tame the vice.

Prior to this move, it was a pity when Rwanda that used to import an average of 60 metric tons of diesel through Kenya completely stopped doing so in July 2016 opting for Tanzania where it noted that there is cleaner fuel and a bigger axle load limit. Also, Burundi stopped importing any diesel from Kenya in May this year and has only imported kerosene twice this year. This is after reducing too their petrol importation volumes from 2,121 metric tons to zero.

Democratic Republic of Congo too, having not been left behind in this move, only leaves Kenya in uncalled for lamentations, reduced the imported volumes of diesel by 14% from 11,425 metric tons to 9,817 metric tons. This leaves Kenya clinching to only two markets of the product; Uganda which imported 1.16 billion litres of petroleum last year, and now the current largest buyer followed by Tanzania. With the loss of these crucial markets Kenya stands to earn less from the export in comparison of the 70 billion shillings made last year.

Tantamount to corruption, this practice has a long-term precarious implication to the country’s economy. As the Energy Cabinet Secretary Charles Keter noted sometime, ‘What these dealers don’t realize is that their greed for quick money is only short-term because, in the long run, the loss of the market in this manner only makes the country face setbacks’.

While reading the budget for the financial year 2016/2017, the Treasury Cabinet Secretary, Henry Rotich noted that the kerosene price was set to rise by sh.7.25 per litre. This was to be so as he noted in order to curb its use in adulteration of petroleum. Despite the fact that this could have been a pragmatic move, the fruits of its implementation have not been realized.

The fact that the petroleum products in Kenya have relatively significant margins in prices makes it be an incentive to the adulteration. For instance, from the latest fuel pump prices reviewed this week as released by the Energy Regulatory Commission, the price for super petrol retails at Ksh94.20 per litre, diesel at Ksh. 87.22 per litre while kerosene retails at Ksh. 63.56 per litre in Nairobi. What would prompt dealers involved in adulteration to refrain from the vice?

Monitoring of this market and its operations especially in the notable notorious towns well-known for adulteration, Kisumu, Eldoret and Nakuru which are major exit towns for fuel meant for export is perhaps one of the first steps towards realizing a lasting panacea. Although monitoring is always required at the retail level, the vertical structure of the market determines the extent to which monitoring is required in other parts of the supply chain. The individuals involved in this practice take advantage of the consumers’ level of incapability to distinguish the product quality and thus find underhand opportunities to tap into the illegal profits.

Hence, repressing this menace requires a thorough enforcement regime designed so that the costs of stricter enforcement that do not exceed the benefits of the reduction in this abuse brings about. In Kenya, just like most of the developing countries, has not yet successfully established a monitoring regime and system of fines that will together be a fierce deterrent to the practice.

Utterly, some of the reasons are the lack of political will, the relatively weak regulatory agencies, lack of public awareness and the shortage of adequate staff to conduct a feasible and plausible designing and monitoring.

One of the ways our very neighbor, Tanzania, have managed to eliminate adulteration is through raising the excise duty on kerosene. It is one of the ways Kenya could do better too. Undoubtedly, the Energy Regulatory Committee (ERC) already introduced the tax that was assented recently, but there is need to have the excise duty raised higher to make the kerosene price level with petrol and diesel. This should however be done carefully keeping in mind the families that will have to move to other forms of energy since affording kerosene would be out of reach.

Eventually, much as the ministry would be involved in having these measures put in place, some of which might not be economically impactful in the short run, there lies a great load of work in ensuring that the unruly dealers in this illegal pursuit are brought to book to create a healthy fair fuel market in the country as well as in the region. In doing so, it is especially important to distinguish between functions that are the proper role of government (regulation) and functions that can be outsourced.

The writer is a Monitoring and Evaluation Specialist. Email: [email protected]

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