Caps on wholesale prices of fuel will be reintroduced following an end to the subsidy on pump prices, in a move meant to shield independent dealers who have for months been forced to negotiate the prices of bulk supplies with the big players.
The Energy and Petroleum Regulatory Authority (Epra) stopped setting caps on wholesale prices of fuel in May last year following the introduction of subsidy on super, diesel and kerosene.
The move has in recent months been protested by small dealers, who have argued that it has amounted to their being locked out of business due to lack of margins when they source fuel from large retailers, who are their direct competitors.
Withdrawal of the caps on wholesale retail prices came amid cash-flow woes facing oil dealers due to delayed compensation from the State, and lower exchange rates of the dollar used to compensate them compared to rates of buying the greenback from banks.
“We will reintroduce the caps on wholesale retail prices now that we are removing the subsidy that had made it difficult to set the caps,” Epra Director General Daniel Kiptoo told the Business Daily.
The government discontinued subsidy on super petrol in the monthly cycle ending tonight. Subsidies on diesel and kerosene are also expected to be scrapped in the pricing cycle that starts midnight and lapses on November 14.
Wholesale prices have traditionally been up to Sh8 less per litre lower than the retail prices of super and diesel, allowing small players to enjoy margins on sales and remain competitive.
Small independent dealers have since last year been left to negotiate wholesale prices with oil majors amid concerns that some have been getting supplies at the set retail prices leaving them with no room to make returns and forcing them to close operations.
Lack of caps on wholesale prices of fuel locked small dealers out of supplies by the oil majors while others in remote parts of the country opted to breach the caps on retail prices, risking fines and closure by the regulator.
The energy regulator sets ceilings on the wholesale retail prices of fuel in a bid to give small independent dealers a leeway to sell the same at the gazetted pump prices and make returns, allowing them to remain afloat. It also allows some small dealers to offer discounts at the pump, which is key to attracting motorists who would otherwise opt for more established outlets.
Drying up of the wholesale market further cut the market shares of independent dealers, especially in urban areas with some oil majors such as French-owned Rubis disclosing that it significantly ramped up fuel sales due to the hitches facing small dealers who are mostly owned by locals. The small marketers combined control about half of the fuel customer base in Kenya.
Vivo Energy Kenya controls 26.52 percent of the local petroleum sales market as at March— the first time that a single oil marketer controls more than a quarter of the market— according to data from industry lobby, the Petroleum Institute of East Africa.