Kenya faces fuel crisis as stocks dry up on dollar shortage

Kenyan consumers are facing fresh fuel shortages as some major oil marketing companies (OMCs) in Nairobi exhausted their stocks and turned away motorists amid serious cash-flow challenges triggered by dollar shortages.

A spot-check by The EastAfrican revealed that several filling stations in parts of the Kenyan capital Nairobi had run out of petroleum products from the weekend, with those owned by Vivo Energy among the hardest hit.

By Sunday afternoon, several outlets by Vivo under the Shell brand had run out of super petrol, with attendants giving motorists the option of buying the company’s V-Power brand. The situation deteriorated Monday with some of the Shell outlets reporting total depletion of products including super petrol, V-Power and diesel.

Vivo did not respond to our queries over the scarcity of fuel at its retail outlets even though insiders and an industry association attributed the situation to a dollar shortage.

Insufficient dollars

“There is sufficient fuel at the depots but the major oil companies are not evacuating it because they do not have sufficient dollars,” said Petroleum Outlets Association of Kenya (POAK) Chairman Martin Chomba.

Vivo Energy is the largest OMC in the country with a market share of 23.83 percent, having sold 1.36 million cubic metres of fuel products in the financial year to June 2022.

The major oil companies such as Vivo, TotalEnergies, Rubis and Ola Energy buy fuel in bulk and supply it to the smaller independent retail outlets, meaning that a shortage at these top firms cascades down to the smaller players.

Kenya is currently battling an acute shortage of US dollars primarily due to pressure exerted by external debt repayments.

Data from the Central Bank of Kenya (CBK) released on Friday shows forex reserves dropped to $6.6 billion (Ksh845.46 billion) on March 2 from $6.86 billion (Ksh878.76 billion) on February 23. This translates to 3.69 months of import cover, which is below the set threshold of four months and comes despite CBK Governor Patrick Njoroge constantly downplaying the shortage.

Higher global prices

Demand for forex has shot through the roof in recent months as importers seek more dollars to finance imports owing to higher global prices of fuel, food products, cooking oil, steel and other imports.

“Yes, talk to the big OMCs. It is a crisis,” said an executive of a smaller oil marketing company who requested anonymity.

The Energy and Petroleum Regulatory Authority (Epra) has also failed to fully withdraw the subsidy on diesel which has compounded the cash-flow woes of the OMCs.

Epra last month partially reinstated a margin of Ksh2.54 ($0.020) per litre of diesel, but amid continued delays by the National Treasury in releasing subsidy funds, the firms have been pushing for the termination of the scheme to ease their cash-crunch.

Muted fuel sales

The OMCs have been borrowing to fulfil their cash needs for fuel imports, but muted fuel sales owing to the tough economic conditions that have seen many motorists park their cars in favour of public transport have compounded their woes.

Should the fuel supply hitch evolve into a full-blown fuel scarcity crisis, it would mirror a similar crisis that began in late March last year after OMCs resorted to hoarding fuel in protest against the government, which had accumulated subsidy arrears of Ksh13 billion ($101 million).

President William Ruto’s government has resorted to government-to-government procurement of fuel, which will see state-owned Gulf companies supply fuel to one local OMC of their choice, who will in turn distribute it to other local players.

The government has already floated a tender of nine months for the fuel supply through the new arrangement, which is a temporary move away from the open tender system where some 112 OMCs compete to procure fuel on behalf of the others.

The government says the new system will help to reduce pressure on forex reserves considering that in the government-to-government fuel purchasing, payment for the cargo will be made after six months compared to the current system where the firms have to pay for the cargo every week.