OPINION: Strategic fuel reserve only way out

OPINION: Strategic fuel reserve only way out

  • The facility would be filled up when global oil prices were low.
  • Kenyans would in turn enjoy the low prices when global rates shot up.

Ten years ago, three firms were shortlisted to establish a strategic petroleum reserve for Kenya.

The three, Glencore Oil, Acadia Oil and Vitol were expected to establish the one billion liters, 90 day stock facility of assorted petroleum products.

The contracting firm National Oil Corporation (NOCK) in numerous press engagements was buoyant that this would save Kenyans the agony of pain at the pump.

Its strategy was simple. The facility would be filled up when global oil prices were low. Kenyans would in turn enjoy the low prices when global rates shot up.

Patrick Nyoike, the then permanent (principal) secretary in the Energy ministry and Kaburu Mwirichia, then Director General of the Energy Regulatory Commission (now EPRA) were upbeat.

“This is a more reliable reserve to cushion the market from erratic price surges and intermittent shortages,” the two said during an interview in March 2010.

But a year later in May 2011, then CEO of National Oil Summaya Athmani told an industry stakeholder forum that they were yet to do a feasibility study on how much it would cost to build the reserves. This is despite the entity having shortlisted three firms to establish the stock reserve in 2010.

Listening to President Uhuru Kenyatta order the ministry of petroleum to develop a framework for stabilization of prices during his Mashujaa Day speech got me thinking.

From the onset, petroleum prices in the country have largely depended on the global markets. Despite the EPRA engineered monthly pump prices; Kenya has very little control of these prices.

While there has been debate, discussions in political rallies and bar banter over the prices, a strategic fuel reserve looks like the ultimate solution.

While arguments have been presented on the petroleum development levy being the ultimate buffer, it is not sustainable. Recent discussions have shown that it is prone to abuse as it lacks the necessary legal legs to stand on its own. The levy which is expected supports a subsidy when fuel prices rocket and infrastructure upgrades in the energy and petroleum sectors has become the ‘to go to cookie jar’ for a cash strapped national treasury.

On the other hand, the government is still working on a draft Petroleum Bill to institute a legal framework for the establishment of a Petroleum Consolidated Fund.

In parliament, members of the national assembly have made good their threats to lower the prices but this attempt may not be enough. The Ukur Yatani led treasury has also indicated in black and white that it will not let these proposals see light of day as it denies them over Ksh30B in the current financial year.

Currently, the global oil prices are at a peak. This is due to growing demand for petroleum products as economies reopen.

It is projected that as vaccination efforts across countries continue, this will pile more pressure on fuel demands. As a result, the pump prices locally will continue to be stretched even if the taxes levied are lowered as demanded by the members of the national assembly.

According to international news outlets, oil markets hit multi-year highs this week supported by a global coal and gas crunch, which has driven a switch to diesel and fuel oil for power generation. The reports add that oil refiners are ramping up output to meet this uptick in demand across Asia, Europe and the United States.

So where does this leave Kenyans? The solution lies with a strategic petroleum products reserve. As currently structured National Oil would be the ideal organization to take up this, however it is financially crippled.

The firm is facing an imminent sale to repay debt it owes local lenders running into billions of shillings. This does not make it the ideal organization to carry the strategic reserve to fruition.

The Petroleum and Mining Ministry draft Petroleum (Strategic Stocks) Regulations, 2020 is a good start. But life must be breathed into these proposals to make it sustainable and cater for the interest of the Kenyan population.

The answer would then be the much publicized public private partnerships pushed by the Kenyatta administration. Get the private sector to work with the government to deliver this. In the long term, it will be the only way out of high petroleum product prices in Kenya.