Tony Watima: Shine light on oil importation ‘open tender system’

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BD>>> Any time the price of fuel has gone up, pundits talk about the high taxes levied on fuel products.

The retail price is always more than double the landed cost because of various levies like excise duty, road maintenance levy, petroleum levy, petroleum regulatory levy, railway development levy, anti-adulteration levy, merchant shipping levy, and import declaration fee.

That long list of levies has not only been a heavy burden to Kenyans but has also distracted us from looking further into the oil importation tender.

COFEK PETITION

Thankfully, the Consumer Federation of Kenya (Cofek) has taken us back there by petitioning the National Assembly to look at the Open Tender System for petroleum products. Cofek raises concerns about the opaqueness of the system, which is denying consumers the benefits of competitive pricing.

Since 2005, Kenya has been importing refined petroleum products through the Open Tender System — whereby the winning bidder solely imports the petroleum products and delivers them at the port of Mombasa where other oil marketers buy from the importer.

This has become one the most lucrative tenders, dominated by a selected few who are well connected or are able to oil palms. It is from this tender that the Sh7.6 billion Triton petroleum scandal came up in 2009. Before Triton, a company that was linked to a top politician held that tender for a while.

TRITON SCANDAL

Post-Triton scandal, government-owned National Oil took over for a period of time as the sole importer of refined oil. Since the Jubilee government took over, there has been less information that has been shared about this tender.

I remember one time an oil trader was complaining that customers were ranting about the sub-standard quality of fuel in their petrol stations, heavy leaded fuel, some even losing their engines, and they were taking a heavy hit.

But what customers didn’t know is that it wasn’t the traders’ problem. The problem was with the sole importer. And that has been the other problem with the single sourcing.

Back to the Cofek petition, it notes that it is impossible to tell what price Kenya secured its oil cargo vis-à-vis prevailing global prices in the market.

The current fuel pricing mechanism doesn’t make necessary disclosures on the procurement of fuel products, only making public the “landed cost” whose computation doesn’t help much when doing a scrutiny because it includes demurrage and other charges such as shipping.

So, in terms of transparency on Open Tender System, it falls short of meeting that threshold. Therefore, the argument that the purpose of the Open Tender System was to ensure petroleum products, whose prices are regulated monthly remain competitive, is null and avoid.

The process of ensuring the prices remain competitive has to start from knowing the prices of the products as compared to the global prices.

The second issue is, according to COFEK, that data from the Energy and Petroleum Regulatory Authorit (Epra) indicates that only 13 out of possible 96 oil marketing companies participate in the monthly OTS tenders.

UNFAIR DOMINANCE

This says a lot about the unfair dominance in the sector. If only 13 percent of market players are the ones participating in the most lucrative tender in their industry, then that sector is being held hostage by a cartel.

I am surprised that the Competitions Authority of Kenya missed this dominance problem. This is a case that the competitions authority should delved into because there is a clear pointer that competition is being stifled.

The Cofek petition raises a number of public interest concerns that the National Assembly should keenly investigate because we seem to have a systemic problem in the petroleum industry.

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