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The government is setting up a 90-day strategic national reserve for petroleum products as a cushion to supply disruptions and price volatility.
The government is setting up a 90-day strategic national reserve for petroleum products as a cushion to supply disruptions and price volatility.

The Ministry of Energy has asked the industry to give suggestions on the best practices in setting up strategic inventories of petrol, diesel, kerosene and cooking gas.

Energy permanent secretary Patrick Nyoike said the ministry is looking at “extra-budgetary” ways to set up the reserves in three months.

“The government is looking at borrowing money and inviting private sector investors to help finance it,” he said.

Kenya has a 40-day import cover of petrol, diesel, kerosene and LPG, which exposes consumers to quick shifts that translate to higher prices when the cost of crude oil goes up suddenly.

Move timely

Metro Petroleum managing director Bill Rotich said the government’s move is timely, as Kenya has suffered major disruptions in the supply chain of crude oil and refined products due to lack of strategic national reserves.

Kenya’s vulnerability is compounded by lack of jetties, as there is only one at Kipevu Oil Terminal where tankers discharge either imported refined fuel or crude oil to be processed at the Mombasa-based Kenya Petroleum Refinery Ltd.

In 1984, the government, through Canadian grants, built  200,000 cubic metres of strategic storage at Kipevu to stock up crude oil reserves.

However, the tanks never served the purpose of storing strategic stocks. They were later leased out to Kenya Pipeline Company (KPC) to form part of what is today called Kipevu Oil Storage Facility (KOSF).

Petroleum Institute of East Africa (PIEA) General manager George Wachira said the idea of strategic stocks never took off due to insufficient stakeholder consultation, lack of legal framework and lack of an agreement on a financing mechanism.

In many countries, strategic stocks are financed by the consumers through a levy, but managed by government as the custodian to avoid economic activities being disrupted by fuel shortage.

Mr Wachira said it is ideal to stock fuel reserves when global prices. Some countries use the stocks as a means to stabilise prices.

But the government and the industry will have to set up rules to govern the drawing of fuel from the strategic reserves and replenishment of the stocks, and who gets access to the reserves and circumstances under which the stocks will be used.

Early this year, the government mandated the National Oil Corporation of Kenya (Nock) to procure strategic national fuel reserves.

Energy minister Kiraitu Murungi then published the petroleum stock regulations 2008 in Legal Notice No. 43 that described the strategic national stocks as comprising petrol, kerosene, diesel and LPG.

“The strategic stock shall be procured by Nock and stored by Kenya Pipeline Company.  In case of consumption or draw-down, it shall be replenished according to its optimal level,” he said in the notice.

Under the rules, the initial 30-day stock is to be funded with money appropriated by Parliament in the 2008/2009 financial year.

The building up oil reserves equivalent to 90 days of fuel consumption is to be funded by money appropriated by Parliament in the subsequent years.