Reform the Oil Sector and Quit Whingeing

The day after Easter was a daytime nightmare for the army of motorists on Nairobi's roads. Petrol station after petrol station reported that Super/Regular petrol was unavailable; stocks had not been delivered due to 'logistical problems in the supply chain'. As usual, some Kenyans took advantage of the problems. The rains during the week proved an added advantage to those who sought to profit from the artificial shortage of petrol. Matatu operators made a killing. Middle-men vendors of petrol made a killing. Vendors of jerry-cans made a killing. The Ministry of Energy and the Energy Regulatory Commission blamed unspecified 'oil cartels' for the problems bedevilling the energy sector. The oil marketers blamed the government for not cushioning them against an adverse market environment. All the players in the sector refused to take responsibility for their part in the fiasco. Meanwhile, Kenyans suffered the shortages with the usual blend of stoicism and whingeing that has become our trademark, another peculiar Kenyan habit.

The oil industry is complex and competitive. According to the Ministry of Energy there are over 50 licensed marketers and distributors of oil products in Kenya. The process of getting petrol into a vehicle begins with the Open Tender System. This leads either to the Kenya Petroleum Refinery at the Coast or to the Kipevu depot of the Kenya Pipeline Corporation. Then this leads to various transport options from the Coast, including rail, road and pipeline, to the limited depots of the main petroleum vendors across the country. The system has been plagued with crisis after crisis for at least a decade and promises by the government to create a Strategic Petroleum Reserve have not borne fruit. The demand by the government that industry players maintain a 21-day buffer to cushion the public from supply shocks is observed more in the breach, and none of the industry players has taken any steps to ensure that the required infrastructure to maintain such a buffer has been constructed. The problems Kenyans faced last week are not the last; they will recur if we do not take steps to change the manner we manage the system.

Regulation of the sector must be reformed. The first step should be to eliminate the conflicts of interest inherent in the system. Many of the policy-makers in the industry are investors in the industry, or they are proxies for investors in the industry. This is set to change when the new Cabinet is unveiled in 2013. God-willing, the President and the National Assembly will keep in mind the strategic importance of the system when appointing the Cabinet Secretary for Energy, keeping in mind the role it will play in meeting the objectives of Kenya Vision 2030 and the suppression of inflation rates. Secondly, the policies to be adopted in managing the sector must take into account that a majority of Kenyans live hand to mouth and any disruptions in the system tend to raise the short-term cost of living, reducing the capital available for other needs such as school fees and healthcare. Thirdly, the role of the sector in the economies of some of our neighbours is crucial to maintain a lead in the region; if the Kenyan government is unable to appreciate this, the risks that international investors will take a more hands-on approach to creating viable alternatives to the Kenyan market are great. For instance, the dredging of the Port of Dar e Salaam is always mooted as a viable alternative to the Port of Mombasa. However, given the low investment in other key infrastructure in Tanzania, such as road and rail, has always prevented the upgrading of the Tanzanian port. However, recent events may encourage international investors, including our current beau China, to invest more in Tanzania, posing an economic challenge to Kenya as the preferred port of choice for the import of oil products into the East African Region. Finally, clear rules must be drafted for the management of the sector and they must be faithfully and transparently enforced. Conflicts of interest must be eliminated as far as possible, otherwise all the reforms in the world will come to naught.

The oil industry plays a significant role in the success or failure of other industries in Kenya. But it is the supply chain where its effects are the greatest. Until it is reformed, the gains that may be made in the supply chain, especially in the export-oriented industries, will be lost and the economic fortunes of this nation may improve only for the few who will take advantage of the situation. A transparent review of energy policies and rules is warranted, and the public must play its part instead of whingeing every time there is a crisis.