Oil firms face steep fines in new two-week stock rule

The Kenya Pipeline Company will also be affected by the new rule as the government moves to boost efficiency in the product supply chain. Photo/FILE 

By ALLAN ODHIAMBO, aodhiambo@ke.nationmedia.com

In Summary

• New regulations meant to prevent supply disruptions will apply a ‘three strikes’ approach to non-compliant firms.
• Marketers whose stocks in various storage facilities cannot cover 15 days’ worth of trade face fines of Sh100,000 for every day in default. For a second offence, the daily fine will rise to Sh200,000.
• The regulations also provide a formula for sharing of storage capacity at government controlled open access facilities amongst the oil importing companies.

Oil marketers who fail to hold more than two weeks’ worth of petroleum products at all times could soon face daily fines or the suspension of their operating licences.

New regulations meant to prevent supply disruptions will apply a ‘three strikes’ approach to non-compliant firms. Marketers whose stocks in various storage facilities cannot cover 15 days’ worth of trade face fines of Sh100,000 for every day in default. For a second offence, the daily fine will rise to Sh200,000.

Any oil marketer caught without enough reserves a third time will have their licence suspended for three months. However, the definition of valid stocks has been changed to make compliance easier.

The new measures are part of the Energy Minimum Operational Stocks and Capacity Regulations 2014 to be handed to Energy and Petroleum minister Davis Chirchir next week for assent and gazettement.

Linus Gitonga, director of petroleum at the Energy Regulatory Commission, said he expects the new rules to be in force soon.

“The commission has already approved the regulations,” he said. “We shall present them to the minister’s office next week for approval and publication.”

The proposed regulations require all companies importing petroleum products for local use to have minimum operational stocks equivalent to 15 days consumption for the various petroleum grades that they trade in. This includes stocks in public storage facilities or at licensed storage depots.

However, it does not include products in transit, in marine tankers, in the country’s pipelines or in petrol stations.

READ: Mega storage and pipeline projects raise hope for improved efficiency in oil industry

Products in consumer depots, which would not have counted towards minimum stocks under the old rules, will now be included when determining whether firms are compliant.

“The regulations have introduced monetary penalties,” Mr Gitonga said. “Any company found to be non-compliant for a third time in succession, risks losing its operating licence.”

Presently, under rules gazetted in 2008, oil marketers must hold between 15 to 30 days of stocks, depending on the products.

Marketers of liquid petroleum gas (LPG) are required to have enough stocks for 15 days of trade while those dealing in petroleum motor spirit, illuminating kerosene, aviation gasoline and industrial diesel oil are obligated to keep stocks equal to 20 days consumption requirements. 

Dealers in furnace oil and automotive gas oil must keep stocks to cover 25 days’ need while kerosene marketers must hold enough to sell for a full month.

The old rules only provide for a blanket fine of up to Sh2 million or two years in jail for non-compliance with regulations.