Independent oil dealers have warned of shortages at their pumps next week due to the Sh1.8 billion debt they have accumulated due to the government’s price stabilisation programme.
Because of the debt, which is only for the July-August period, the large oil marketing companies (OMCs) are reluctant to sell to independent dealers at the subsidised prices.
Under the United Energy and Petroleum Association (Unepea), the dealers warned that if the stabilisation programme is not reviewed, they risk closing their 800 retail outlets across the country.
In a statement, Unepea chairperson Irene Kimathi said that while the price stabilisation eases the burden on their customers, it distorts the market for dealers as OMCs are expected to sell the product at a price below the actual cost. This means that the OMCs’ profit is held back by the subsidy and they are unable to sell to the independent retailers.
“Independent oil dealers are facing the possibility of closing down their businesses. This could lead to a countrywide shortage of the product as the independent dealers control 50 per cent of the market share,” said Ms Kimathi.
“This has been brought about by the increase in international prices and the subsidy offered by the government. The association is therefore warning of serious shortages if the current subsidy policy is not reviewed,” she added.
The association said if the government insists on subsidies, it should consider reducing some of the levies and taxes in the cost of the product instead of the current refund method.
“This will help with liquidity in the sector and therefore the free flow of the product,” said Ms Kimathi.
Currently, the government compensates dealers using funds from the Petroleum Development Levy
“The soaring international prices have not made things easier, this has led to oil marketers hoarding their products and waiting for the announcement of the next cycle prices to avoid losses,” Ms Kimathi said.
The association has also urged the Kenya Revenue Authority (KRA) to collect VAT from petroleum dealers at the depot level, a move it says will curb theft and ease the burden of compliance on small players.
Under the Finance Act 2023, KRA is empowered to establish an electronic system through which electronic tax invoices must be issued and stock records maintained for tax compliance purposes. Those who fail to comply will face a fine of twice the value of the tax due, up from the current penalty of Sh100,000.
Ms Kimathi also complained that while the Energy and Petroleum Regulatory Authority caps the retail segment to cushion consumers, wholesale prices are left to escalate according to market forces, which is not favourable to retailers.
“We are calling for the wholesale cap to be reinstated. Our margins have not been reviewed since 2019. These margins were factored in when fuel was Sh90, now the cost is more than double but the margins are the same. We’re not unaware of the current economic situation but it’s becoming economically unbearable to run the business,” said Ms Kimathi.
