Caps on wholesale fuel prices to make a return

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Caps on wholesale fuel prices to make a return


A tank truck on Kiambu Road, Nairobi. PICTURES | NMG

Wholesale fuel price caps will be reintroduced after the end of the pump price subsidy, in a bid to protect independent resellers who have been forced for months to negotiate bulk supply prices with large actors.

The Energy and Petroleum Regulatory Authority (Epra) stopped setting caps on wholesale fuel prices in May last year following the introduction of subsidies on super, diesel and kerosene.

In recent months, this decision has been challenged by small dealers, who argued that it amounted to their exclusion from business due to the lack of margins when sourcing fuel from large retailers, who are their direct competitors. .

The removal of caps on wholesale retail prices came amid cash flow problems facing oil traders due to delayed state compensation and falling exchange rates for the dollar used to offset them against the rates for buying the greenback from the banks.

“We are going to reintroduce caps on wholesale retail prices now that we are removing the subsidy that made it difficult to set the caps,” EPRA chief executive Daniel Kiptoo told Business Daily.

The government has ended subsidies on super petrol in the monthly cycle ending tonight. Subsidies on diesel and kerosene are also set to be removed in the pricing cycle which begins at midnight and expires on November 14.

Wholesale prices have traditionally been up to 8 shillings lower per liter lower than retail prices for super and diesel, allowing smaller players to benefit from margins on sales and remain competitive.

Since last year, small independent dealers have had no choice but to negotiate wholesale prices with the oil majors, fearing that some will supply at the fixed retail prices, leaving them no room for maneuver to make returns and forcing them to close their doors.

The absence of wholesale fuel price caps has prevented small dealers from sourcing from oil majors while others in remote parts of the country have chosen to violate retail price caps, risking fines and closure by the regulator.

The energy regulator sets caps on wholesale fuel retail prices in a bid to give small independent dealers leeway to sell the same at the official pump price and make returns, allowing them to stay afloat. It also allows some smaller dealerships to offer discounts at the pump, which is key to attracting motorists who would otherwise opt for more established outlets.

The drying up of the wholesale market has further reduced the market shares of independent dealers, particularly in urban areas, with some oil majors such as the French company Rubis revealing that it has significantly increased fuel sales due to the difficulties encountered. by small, mostly locally-owned concessionaires. . Small traders together control about half of Kenya’s fuel customers.

Vivo Energy Kenya controls 26.52% of the local oil sales market in March – the first time a single oil distributor controls more than a quarter of the market – according to data from industry lobby, the Petroleum Institute of East Africa.

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