The inside story of the regional fuel crisis

The 2008 festive season did not go so well for most Rwandans as all parts of the country were affected by a serious shortage of petrol. Reports indicate that the shortage spread throughout the region. However, diesel was in adequate supply. What is even more worrying is that countries of East and Central Africa that rely on Kenya for their fuel supplies may continue experiencing shortages until plans by the Kenyan government to supplement the only oil pipeline running from the port of Mombasa through Nairobi to the Eldoret and Kisumu terminals in Western Kenya are fully implemented. Despite the increasing demand for fuel in the region, the 896km long pipeline flow rate remains constant since its inauguration in 1994. The Kenya Pipeline Company (KPC) mans the pipeline whose terminals in Kisumu and Eldoret are currently over-stretched—supplying; Western Kenya, Uganda, Rwanda, DR Congo, Burundi, Southern Sudan and northern Tanzania. For over 14 years now, these terminals have had a constant flow rate despite a high increase in fuel demand in the region. According to information obtained from the KPC website, the current flow rate of fuel between Mombassa and Nairobi is 440,000 litres/hour, 160,000 litres/hour between Sinendet and Kisumu terminal, and the same rate between Burnt Forest to Eldoret terminal. There were reportedly attempts to build a parallel line to supplement the old one but has since failed to function as prospected—leading to continued reliance on only the old pipeline that keeps breaking down. Further, Kenyan Prime Minister Raila Odinga recently cast blame on his country’s major oil distributors – whom he said are mainly multinational companies – for refusing to release fuel with an aim of deliberately creating a shortage. To Rwanda’s trade and industry ministry, the shortage was also brought about by the fear by international suppliers of the recent upsurge of Somali pirates who have been hijacking vessels plying the Indian Ocean route. The recent petrol shortage caused panic in the region. Speculators took advantage to hoard fuel so that they could hike prices. As governments and regional bodies devised sustainable solutions, Rwanda was credited with maintaining the pump prices low compared to other countries in the region. In Uganda for instance, the petrol pump price reportedly increased from Shs2,356 to Shs10,000 a litre. But in Rwanda, despite her disadvantaged location (landlocked and far from the oil terminals), the pump price was maintained at Rwf756 per litre. The trade and industry minister, Monique Nsanzabaganwa told the press that the government subsidized over 50% of taxes on import duty for oil products to tame the pump prices. Pundits say that over subsidizing is a cost to a nation in terms of foregone tax revenues. To Mr. Eugene Torero, the deputy commissioner general of Rwanda Revenue Authority, if the government did not subsidize fuel, inflation would go through the roof. Government also introduced fuel rationing with cars allowed to consume not more than 20 litres per day during the shortage. Drivers in Kigali resorted to buying huge quantities of fuel in anticipation of further shortages. 2008 was characterised by high oil prices on the global market especially in the first half. This was exacerbated by the post-election Kenyan crisis between January and February. The barrel hit a record high, reported at over US$100 a barrel due to a significant drop in production levels by countries under the Organisation of Petroleum Exporting Countries (OPEC). The subsequent acceptance by OPECs to increase production saw the global oil prices drop to as low as US$48 a barrel. In the last quarter of the year oil prices had normalized but when the global financial crisis set in around November and prices started rising again. Most people are until now not aware why it is only petrol and not diesel or jet fuel that is in short supply. In an exclusive interview with Mr. Eugene Kayigamba, the President of the Private Sector Federation Chamber of Commerce and Services, he divulged details that caused scarcity of petrol in the region. Mr. Kayigamba, who is also the Country Manager of Hass Petroleum Rwanda sarl, a subsidy of Hass Petroleum Company, said petrol scarcity came about when KPC stopped a vessel of petrol in Mombassa from delivering fuel because of not meeting required substandard. He further explained that fuel from Mombasa to the terminals in Kisumu and Eldoret is transported through the same pipeline in batches—thus the same pipeline transports petrol, diesel, jet and regular one at a time. With his rich experience in petroleum products, the Hass Petroleum Rwanda MD said missing one vessel was just enough to create a crisis. He also emphasized that capacity of the pipeline is over stretched by the ever increasing fuel demand in the region. He also observed that the consumption of petrol is growing much higher than diesel in Rwanda but forecasts in supplies have not followed the same trend. He further explains that there are unavoidable delays at loading terminals in Kisumu and Eldoret. “Trucks are loaded according to “market share”—a system based on how much fuel a consumer demands and sphere of operation. Thus trucks for multinationals stand better chance of loading faster and more frequently”. Special treatment has been given to countries demanding diesel for energy generation. Thus, trucks transporting diesel for the Agreko generators that supply power to Electrogaz are not affected by the delays. Ends

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The inside story of the regional fuel crisis