Introduction

The recent three months have experienced a substantial / drastic reduction in the international prices of petroleum products. However, this reduction has taken long to materialize in all loading points in Kenya. This is exemplified by the following FOB values as compared to $ 456.97/m3 for PMS (Essence) and $ 570.45/m3 for AGO (Diesel/Mazout).

A fact finding mission sent to Kenya found the following:

Findings:

1.Kenya consumes 62% of the Diesel from the pipeline system. The rest of the countries DRC, Uganda, Rwanda, Burundi and Northern Tanzania get 38%.

2.Kenya consumes 48% of the Premium from the pipeline system. The rest of the countries DRC, Uganda, Rwanda, Burundi and Northern Tanzania get 52%.

3.Ship discharging at the port normally takes 3 days from berthing to discharging.

4.Open Tender System for white oil and crude oil ship carrying local (Kenyan) product is given priority in discharging over any Transit (Export) ship.

5.Due to this priority an Export (Transit) ship can take 30 days to discharge attracting a demurrage of US$ 27 per ton.

6.Power Generation in Kenya is given priority and Aggreko is given a special allocation of 3492 Cubic metres of AGO monthly guaranteeing power supply in Kenya.

7.No special allocation is given for power generation for other countries in the region.

8.Current pipeline is unable to cope with the demand and product has to be trucked from Nairobi and Mombasa.

9.Bulk purchase of petroleum products by the big companies which takes time to clear the stock.

10.Product can take 60 days from the port of loading to being discharged in Western Kenya and thus price adjustments follow the same time lag.

11.The scarcity of products especially Super was mostly due to Mombasa-Nairobi pipeline upgrade works that had been taking place. But this pipeline extension which is supposed to double pumping capacity and hence the increased availability of products has already been commissioned.

12.The problems of limited loading capacity in western Kenya will continue to be interrupted until another pipeline for transit and export of petroleum products is finished around 2010.

The Transit and re-export data of petroleum products destined to Rwanda for the months of August, September and October 2008 together with the F.O.B prices were obtained from KRA (Kenya Revenue Authority).

Based on this data, the following was found to be the average selling prices in Kenya as shown in the table below:

Product /Months
PMS 808 (August) 704 (September) 774 (October)
AGO 910 (August) 874 (September) 784 (October)

The figures above clearly show that the F.O.B in Kenya is higher than what is currently on the international prices. This is due to the fact that dealers are still buying from the old stock that was purchased at higher prices. This is evidenced in Kenya itself where the pump prices have not been adjusted down wards as a result of international price decline. It was only on Monday 1st December 2008 when SHELL Kenya Company reduced the pump price by Kshs 15. This gives hope that the situation may ease in the near future.

Arrangements made for December

In line with the findings of the mission, FOB values used in the December price structure have been adjusted upwards; for PMS they vary from 610$ in Nairobi to 630$ in Kisumu and 691$ in Dar es Salam, and for AGO they vary from 652$ in Nairobi to 673$ in Kisumu and 658$ in Dar es Salam, keeping the pump price at 756RwF, and subsidies levels at 51-68% for PMS and 67-78% for AGO depending on loading points.

Situation as of 10/12/2008

1.Imports have resumed, but many trucks are staying long days and even months in the queues in Eldoret, Kisumu, Nakuru and Nairobi. On 10/12/2008, about 1 million L of PMS had landed. Additional close to 5 million L in transit and are expected to land here by land by 20/12/2008. These quantities are equivalent to 29 days, which should keep us through the first week of the New Year. In addition, trucks worth 3,650,000 L are still waiting in the queues in various loading points in Kenya.

2.The Northen Corridor is still problematic in many ways: The second line pumping the product from Mombasa to Nairobi again collapsed. Power cuts which can go up to 9 hours a day still continue to occur. When such cuts happen, it disrupts the loading sequencing (since Petrol, Diesel and Jet use the same pipeline) as Jet is accorded priority in order to keep the Airport running. All this results in fewer and fewer products pumped to Eldoret, Nakuru and Kisumu where many Rwandan companies get their products. It is worth mentioning that loading quantity per truck is very rationed in Nairobi compared to the other loading points.

3.Good news is that contrarily to what has been the case in the past, the pipeline will remain open during the Festive Season except on Christmas day most likely.

4.The Central corridor is an alternative solution. However, transit period is limited to 21 days (or 30days if clearing process is include), which is unpractical. Loading allowance per truck is also limited to about 35,000 L. Furthermore, foreign transporters face numerous non tariff barriers such as weighbridges. MINICON and RRA have been engaging their Tanzanian counterparts to alleviate.

5.On local market, identified problems have been, apart from the shortages; long queues, priority given to “bons” holders, corruption, too tight rationing that could go as low as a maximum 3000RwF per car irrespective of the type and use. This particularly hurt Taxi Minibus that operate long routes up country.

6.All in all, the gap in PMS is still there but closing. Some rationing is still in order where applicable in order to ensure all petrol stations run wet all the time, for if even one runs dry, it will attract panic in the public.

7.The situation for Mazout is normal. No rationing is required for this product.

Decision taken in agreement with petroleum dealers include:

a)Petrol stations shall not serve people coming with jerricans

b)Public transport vehicles shall not be rationed

c)Petrol stations will serve a maximum of 15,000 RwF per vehicle other than public transport ones that fill on PMS

d)Inspections shall continue and tighten on the part of Government whereby Managing Directors are also invited to act proactively with their ground staff.

Other measures include:

a)Request the Government of Kenya to allocate more shares for Rwandan trucks and the possibility to load from all points including Mombasa.

b)Request the Government of the United Republic of Tanzania to remove all NTBs as they committed to do during the last Investment Conferences.

Kigali, on 11/12/2008.