Kenya is adopting measures to address challenges in its petroleum export industry which has led to the loss of up to 30 percent of market share to neighbouring Tanzania. Some of these issues, which has threatened Nairobi’s position as East Africa’s top petroleum exporter, are high pipeline tariffs, fuel adulteration and smuggling.
Last year, Kenya recorded 739.800 tonnes of petroleum exports, a drop from 842.400 tonnes in 2017, according to the Economic Survey 2019. And in the first half of this year, there was a 43 percent decline in the value of domestic exports which stood at $11.5 million, from $20.2 million in the same period in 2018.
While Nairobi grapples with falling volumes, Tanzania has seen a significant rise in imports. Available data shows that in the financial year ending June 2018, Dar recorded 2.6 million litres in the volume of transit products, a 35 percent rise from 2 million litres in 2017.
In a string of measures aimed at regaining the lost market share, Nairobi has slashed pipeline charges by 50 percent. The newly imposed tariffs require oil marketing companies to pay $30.89 per 1,000 litres, down from $60, to transport fuel using Kenya Pipeline Company facilities.
“Kenya had lost about 30 percent of its petroleum export market to Tanzania mainly due to the high tariffs charged for pipeline transport,” the Director-General of Kenya’s petroleum regulator, Pavel Oimeke, told The EastAfrican. The new rates will apply for the next three years and are to be further lowered to $30.65 in 2020 and $29.07 in 2021.
With the lowered tariffs, Kenya is also targeting increased usage of the Mombasa port by importers of petroleum and petroleum products. Reports say most of the importers prefer Tanzania’s ports due to the authority’s efforts to comply with laws and standards in the downstream sector.
In addition to the downward revision of the pipeline tariffs, Kenya has also intensified its crackdown on fuel adulteration and smuggling. The menace reportedly costs the government up to $340 million and the East African Community (EAC) more than $500 million in tax revenue annually.
Kenya’s revenue authority (KRA) has “enhanced vigilance at the country’s border points,” said Kevin Safari, KRA Commissioner for Customs and Border Control. This is part of the measures aimed at curbing the illicit trade of fuel and counterfeits.
According to reports, the agency stopped a consignment of 7,000 litres of diesel fuel smuggled from Ethiopia last week. The operation was carried out in collaboration with a multi-agency team set up to strengthen co-ordination among different agencies in curbing illicit trade.
Increased export volumes
Kenya’s efforts to recapture the petroleum export market from Tanzania appears to be yielding results. Within 10 days after the implementation of the revised pipeline tariffs, the petroleum regulator saw export volumes double according to Oimeke.
The EPRA DG added that the level of petroleum fuels adulteration in Kenya has significantly reduced since September 2018 when an anti-adulteration measure was introduced for Kerosene. While dumping has also significantly reduced after upgrades were made to the petroleum fuels marking and monitoring programme since January this year.
The improvements include increased frequency of monitoring and stiffer penalties for culprits, which has seen compliance levels for both dumping and adulteration hit 100 percent as at the end of last quarter.
“EPRA has increased surveillance and also enlisted the help of the National Police Service to ensure that the problem is dealt with,” Oimeke said, adding that EPRA is working with regional energy regulators under the auspices of the Energy Regulators Association of East Africa to improve compliance across the region.