A glimpse into the current economic policies makes little to no mention of plans by Kenya to set up strategic fuel reserves despite this idea being on the cards of previous administrations.
Kenya has no strategic reserves and relies solely on oil marketers’ 21-day oil reserves required under industry regulations. Plans to give NOCK the tender to import 30 percent of Kenya’s monthly fuel imports to reduce dependency on independent oil marketers, have stalled given the parastatal’s empty pockets.
- Conservative estimates indicate that Kenya spends upwards of KSh 90 billion or more a year to import crude oil, figures that are on a steep rise with each depreciation of the Kenya shilling against the greenback.
- At the moment, Enoc, Adnoc, and Aramco are the three international oil companies under the government-to-government arrangement that ship in crude oil to Kenya.
- These companies have Gulf Energy Ltd, Galana Energies Ltd, and Oryx Energies Kenya Ltd as their agents to import petroleum products into Kenya on their behalf.
While Kenya has no strategic fuel reserves, petroleum is its single largest import item and is likely to remain so for decades to come.
Price volatility has been a challenge for fuel consumers and Kenya’s economic stability. Analysts attribute the high prices at the pump to high taxation levels and an apparent collapse of the country’s price stabilization mechanism or fuel subsidies.
The government notes that Kenya is well endowed with cheaper renewable power resources and appears keen to go the route of green and renewable energy to replace fossil fuels. While this administration does not elaborate on plans for strategic fuel reserves, it mentions plans to set up a legal framework to ring-fence the fuel stabilization fund.
- Countries that have gone the fuel reserves route are led by the USA which has an emergency stockpile of petroleum maintained by the United States Department of Energy (DOE).
- It is the largest publicly known emergency supply in the world; its underground tanks in Louisiana and Texas have a capacity for 714 million barrels (113,500,000 m3).
- Attempts by Kenya to have its own stockpile of fuel reserves have been on the backburners for more than 15 years since 2008 when the idea was first mooted.
In the latest move, Kenya planned to allocate the task of maintaining strategic fuel reserves to the state-owned National Oil Corporation of Kenya (NOCK).
According to the legal notice of The Petroleum Act, 2019 (No. 2 of 2019), there is to be established a percentage of the import requirements to be imported by the National Oil Corporation of Kenya.
The purpose of this strategic reserve is to ensure security of supply in times of uncertainties; price stabilization in an unregulated pricing regime; and strategic stock requirements as may be specified by the Cabinet Secretary are met.
- These draft rules also stipulate that Kenya Pipeline Company Limited will allocate up to a maximum of 30% of its total storage capacity for the purpose of maintaining the strategic fuel reserves that will include petrol, kerosene, gasoil, premium motor spirit, and Liquefied Petroleum Gas.
- The strategic petroleum stockpiles are designed to cushion the country from supply disruptions caused by domestic or global factors.
- According to the draft, strategic stocks shall be shared on a pro-rata basis among Oil marketing companies, based on their immediate throughput data as shared by Kenya Pipeline Company less transit volume.
The draft rules envisage the establishment of a Consolidated Petroleum Fund, created by the Petroleum Act 2019, to finance the acquisition of products that will be stored as strategic stocks.
This Fund is to get financial resources from the National Treasury, through budgetary allocations as well as contributions from Oil Marketing firms.
This article first appeared on the 6th issue of The Weekly Brief by Kenyan Wall Street, a newsletter that goes out every Monday at 9:00 am (EAT). Read the online version here.
https://kenyanwallstreet.beehiiv.com/p/estonia-comes-nairobi-kenyas-fuel-reserves
