Marketers’ relief as diesel profit margins partly back

Oil marketing companies have been handed a slight reprieve after the government partially reinstated a profit margin on diesel, which is the most consumed fuel product, for the first time in months.

The Energy and Petroleum Regulatory Authority (Epra) on Tuesday retained pump prices for Nairobi at Sh177.3 per litre for petrol, Sh162 for diesel, and Sh145.94 for kerosene.

This comes as the regulator also maintained cross-subsidisation where motorists are charged more for petrol to keep the prices of diesel stable.

“The price of diesel has been cross-subsidised with that of super petrol while a subsidy of Sh19.41 per litre has been maintained for kerosene in order to cushion consumers from the otherwise high prices,” said Epra.

The review crucially saw Epra partially reinstate a margin of Sh2.54 per litre of petrol.

Fuel dealers have been selling diesel and kerosene at zero margins and then waiting for months to be reimbursed the money by the National Treasury, which hit the firms with cash flow headaches.

With Treasury failing to pay billions of shillings in subsidy arrears for months, oil marketers have been forced to rely on loans to replenish their stocks.

Fuel shortage crisis

The firms had warned that the country could plunge into another fuel shortage crisis should the government continue withholding the arrears. But the partial reinstatement of the margin on diesel will allow them to collect money from motorists upfront to ease their mounting cash flow challenges.

Oil marketing companies have only been collecting a margin on petrol and waiting for subsidy money from the government on diesel and kerosene.

Petroleum Outlets Association of Kenya (POAK) Chairman Martin Chomba told the Nation that dealers have been struggling to operate their outlets owing to the delayed release of subsidy arrears by the government which is estimated at more than Sh57 billion.

The actual extent to which the partial margin will have on easing the cash flow challenges of oil marketers, however, remains to be seen.

“We have been struggling to pay our bills because we are not getting the margin that we are supposed to,” said Mr Chomba.

“We have been forced to rely on loans to run our operations and not everyone can afford these loans. If you walk into some of these retail outlets you will find that they are struggling to buy fuel stocks,” he said yesterday.

This comes at a time the government has failed to fully withdraw the subsidy as it had told the International Monetary Fund (IMF) in December.

The National Treasury had said that it would end the programme in December last year.

Oil marketers have been betting on the full end of the subsidy to enable them to return to their full operational capacities by easing cash flow constraints.