Kenya woos oil importers in bid to reclaim business lost to Tanzania

A new oil jetty at the Kenya Pipeline Corporation depot in Kisumu in western Kenya. Nairobi is wooing petroleum importers with a raft of incentives. PHOTO | FILE | NATION MEDIA GROUP 

In Summary

• Kenya hopes the intensified surveillance and crackdown on fuel adulteration and dumping will help the country recapture the petroleum export market from Tanzania.

By NJIRAINI MUCHIRA
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Kenya hopes to regain its petroleum export market after cutting pipeline tariffs by 50 per cent, a development that sets up stiff competition with Tanzania.

Nairobi, which had lost about 30 per cent of its petroleum export market to Dar es Salaam, is also stepping up its crackdown on fuel adulteration and smuggling, a growing menace costing the government $340 million annually in lost taxes.

Last week, the Kenya Revenue Authority in collaboration with a multi-agency team formed to strengthen co-ordination among different agencies in curbing illicit trade intercepted a consignment of 7,000 litres of diesel fuel smuggled from Ethiopia.

This comes at a time when the Organisation for Economic Co-operation and Development estimates that the East African Community loses over $500 million in tax revenue annually due to counterfeiting.

“KRA has enhanced vigilance at the country’s border points as part of key measures geared towards stepping up the fight against illicit trade and counterfeits,” Kevin Safari, KRA commissioner for Customs and Border Control said in a statement.

Kenya hopes the intensified surveillance and crackdown on fuel adulteration and dumping will help the country recapture the petroleum export market from Tanzania.

TARIFFS

More critically, Nairobi hopes the lower pipeline tariffs will encourage petroleum and petroleum products importers to use the Mombasa port for products destined for neighbouring landlocked countries like Uganda, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo.

In the new tariffs imposed by the Energy and Petroleum Regulatory Authority, oil marketing companies will pay $30.89 per 1,000 litres down from $60 to transport fuel using Kenya Pipeline Company facilities.

The rates, which will apply for the next three years, will further be lowered to $30.65 in 2020 and $29.07 in 2021.

“Kenya had lost about 30 per cent of its petroleum export market to Tanzania mainly due to the   high tariffs charged for pipeline transport,” EPRA director general Pavel Oimeke told The EastAfrican.

He added that in the past 10 days after the implementation of the revised pipeline tariffs, the export volumes have doubled, a trend that is ultimately expected to regain the lost market share.

KPC, which was pushing for an upward review of the tariffs that include the domestic market, has however protested the reduction ostensibly on the basis that it will have a negative impact on its bottom line.

The company wanted an increase to raise funds to service massive debts procured to finance infrastructure investments including the new Mombasa-Nairobi pipeline constructed at a cost of $473.4 million, and the four new oil storage tanks in Nairobi that cost $50 million. The company has also invested $16 million in the Kisumu Oil Jetty.

Mr Oimeke said that KPC has submitted a protest letter to EPRA, which does not amount to an appeal against the new tariffs.

“They are yet to submit a detailed appeal to us. What we received is a protest letter. We have written to them and advised on how to structure the appeal accompanied with justification for each item. We will objectively review once we receive the detailed appeal,” he added.

According to the Economic Survey 2019, Kenya’s volume of petroleum exports declined to 739.800 tonnes in 2018, from 842.400 tonnes in 2017.

Although the value of total exports rose by 7.5 per cent to $374.2 million in 2018 on account of a growth in the value of re-exports, the value of domestic exports of petroleum products dropped by 15.2 per cent to $40.5 million in 2018.

DOMESTIC EXPORTS

In the first half of 2019, the value of domestic exports stood at $11.5 million from $20.2 million in same period in 2018, a 43 per cent decline.

While the volumes of transit petroleum products imports in Kenya have been on the decline, Tanzania has recorded a significant rise in imports entering through the ports of Dar es Salaam and Tanga.

Data by the Energy and Water Utilities Regulatory Authority of Tanzania shows that in the financial year ending June 2018, the volume of transit products stood at 2.6 million litres compared with two million litres for 2017, a 35 per cent rise. Ewura, in its 2018 annual report reckons that importers prefer Tanzania due to the authority’s efforts in ensuring compliance to laws and standards in the downstream petroleum subsector.

According to Mr Oimeke, the level of petroleum fuels adulteration in Kenya has significantly reduced since September 2018 when the anti-adulteration of $0.173 per litre was introduced for Kerosene.

In addition, dumping has significantly reduced due to improvements implemented to the petroleum fuels marking and monitoring programme since January this year. The improvements include increased frequency of monitoring and stiffer penalties for culprits, which has seen compliance levels for both dumping and adulteration hit 100 per cent as at the end of last quarter.

“EPRA has increased surveillance and also enlisted the help of the National Police Service to ensure that the problem is dealt with,” he said.

He added that EPRA is working with regional energy regulators under the auspices of the Energy Regulators Association of East Africa to improve compliance across the region.

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TARIFFS

The Energy and Petroleum Regulatory Authority has allowed oil marketing companies to pay $30.89 per 1,000 litres in tariffs, down from $60 to transport fuel using Kenya Pipeline Company facilities.

The rates will apply for the next three years and will be further lowered to $30.65 in 2020 and $29.07 in 2021.

Oil marketers pay on average $80 to ferry oil from Dar es Salaam on trucks but pay $60 tariff on pipeline to Kisumu and a further $35 to truck the product to Uganda, Rwanda and northern Tanzania buying countries. Tanzania has also stepped up competition by increasing efficiencies at the port.

According to the Economic Survey 2019, Kenya’s volume of petroleum exports declined to 739.800 tonnes in 2018, from 842.400 tonnes in 2017.

But KPC has protested the cut in tariffs.