Fuel crisis sign of failed government

Corruption, negligence, poor management and harsh taxes are to blame for the ongoing fuel crisis, say oil industry workers.

Public transport vehicles (matatus) at a Nairobi fuel station.

Public transport vehicles (matatus) at a Nairobi fuel station.

For many years, there was little expansion of storage and oil transmission networks. At Kipevu oil terminal in Mombasa, storage tanks built more than 20 years ago have not been extended.

Over the past five years, heavy demand from Kenya, Uganda, Rwanda, Southern Sudan and the Democratic Republic of Congo has stretched storage capacity to its limits.

Oil shortages have become so bad that unless remedial action is taken, flights at the Jomo Kenyatta International Airport will soon be grounded.

The oil pipeline from Mombasa to Nairobi, managed by the state-owned Kenya Pipeline Corporation (KPC), was recently upgraded at a cost of billions of shillings. The upgrade was supposed to enhance capacity from 440,000 cubic metres to 880,000 cubic metres. President Kibaki himself commissioned the upgraded system just weeks ago.

Its now been revealed that in spite of the billions spent on the upgrade, KPC only manages 550,000 cubic metres on a good day. Rampant power blackouts, system breakdown and vandalism of the pipeline means that the maximum 880,000 cubic metres flow is unlikely to be achieved.

A section of oil workers who talked to the Nairobi Chronicle say that the statutory requirement that oil companies process crude oil at the Changamwe Oil Refinery is a major contributor to fuel shortages. The colonial era facility is so derelict that major oil companies have pulled out, leaving their stake to the government. Changamwe is prone to breakdowns, and it cannot process unleaded petrol and low-sulphur diesel.

“Kenyans don’t know that they are buying leaded fuel mixed with imported unleaded fuel because our refinery cannot produce unleaded,” discloses an oil worker. And because Changamwe produces diesel with high sulphur content, its product has to be ‘blended’ with imported diesel in order bring down sulphur to acceptable levels.

“This refinery should be shut down and a new one built from scratch,” concludes the oil worker.

But the government insists that Changamwe is viable and has invited Libyan investors to rehabilitate the refinery. Apparently, the government lacks the massive funds needed for upgrading.

The oil industry says the imposition of advance tax by the Kenya Revenue Authority has worsened a bad situation. KRA introduced advance tax as a means of curbing the dumping of duty free fuel meant for export into the local market. With this measure, KRA collects taxes at the port of Mombasa before fuel is distributed to consumers.

In effect oil companies must pay billions of shillings to the KRA before they are allowed to sell. Consequently, they must borrow to pay the tax. When advance tax was introduced, the price of fuel immediately shot up by Shs3 a litre due to interest payments for tax loans. In a global financial environment where credit is hard to come by, oil companies will find it challenging to borrow to pay advance tax. Already, one oil company – Triton Petroleum – fell into receivership this December.

Incidentally, Triton is said to have hogged up more than half the storage capacity at Kipevu even though the company has a meagre 4% market share. The hogging of space has denied other oil companies storage, forcing oil-laden ships arriving at Kilindini to drop anchor in the high seas while waiting for the Kipevu tanks to be emptied. Of course, the shipping companies impose delay surcharges on oil companies and this cost is passed to consumers in the form of high fuel prices.

Arbitrary enforcement of standards by the Kenya Bureau of Standards (KEBS) and the KRA are adding to the woes afflicting the oil industry. In November, KEBS turned away a gas ship claiming that the gas was, “below standard.” The move, which caught importing oil companies unaware, resulted in a month long shortage of LPG in the country. Industries cut production as households turned to charcoal for their cooking needs.

“Nobody knows which standards KEBS and KRA are imposing,” says an oil industry insider, “the rules change everyday. What is legal today may become illegal tomorrow without any communication or consultation. Its a very unpredictable working environment.”

Corruption is a major cause of the worsening oil shortages. Like everything else at the port of Mombasa, shady deals are common during the import clearing process.

The management of KPC is influenced by political horse-trading, meaning that top executives at the corporation may not be fully conversant with the dynamics of the international oil market. As the industry struggles with shortages, KPC is busy investing in offices and gymnasiums.

The fact that importation of oil is managed by a committee in the Ministry of Energy doesn’t make matters any better. A fully, liberalized environment perhaps would improve efficiency instead of the current regimen of a half-liberalized, half state-controlled industry. As though that were not enough, some major oil companies are owned by politicians.

In spite of the bad situation, the government plans to micro-manage the oil industry. From January 2009, price controls may be imposed to “protect consumers from exploitation by multi-nationals.” The government is also encouraging state-owned National Oil Corporation of Kenya (NOCK) to expand its operations in retailing and distribution of fuel though its prices are the same as those of multinationals.

As Kenya’s oil industry gets chaotic, multinationals are deciding to leave. The ruling elite are reportedly salivating at the prospects of grabbing huge chunks of the lucrative oil market but it is the ordinary consumers who will pay through the nose for scarce fuel.

Indeed, as Kenya’s second president used to say, “bad politics equals bad life.”

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Price controls will cause shortages

The Kenyan government’s threat to impose price controls on fuel could create shortages and make life worse for its people.

Faced with rising prices, declining agricultural production and a weakening currency, authorities in Kenya are eager to calm a restive population recently scarred by ethnic violence.

Analysts warn against price controls in an economy liberalized 14 years ago. “Market forces are the most efficient price determinant for goods and services,” says an economics lecturer at the University of Nairobi, “because governments often cannot act quickly enough to raise or lower prices depending on demand and supply.”

It is feared that spiraling inflation caused by rising commodity prices could undermine a fragile peace between supporters of President Mwai Kibaki and those of Prime Minister Raila Odinga.

This week, the coalition cabinet discussed the rising prices and their impact on the economy. During the weekend, the Prime Minister promised that the government would tackle high food prices but fell short of mentioning specific steps. Raila was addressing his constituents in the Kibera slum, Africa’s largest.

Meanwhile, acting Finance Minister John Michuki has promised to take tough measures against oil companies for not heeding a government ‘directive’ to lower fuel prices by Shs10 (US$0.133) a litre. Michuki accuses oil companies of greed, a charge widely repeated by Kenya’s media.

As international crude prices hit a high of US$147 by mid this year, petrol prices surpassed Kshs105 (US$1.4) a litre. Now, international crude prices have settled at below $100 a barrel but fuel prices locally have reduced marginally. Most stations are retailing petrol at about Kshs99 ($1.32) per litre.

Multinational oil companies say they are being condemned unheard. Intense competition in the sector has reduced profit margins to just a few cents for every litre of fuel. “Kenyans think that oil companies are making huge margins, which is not true,” explains the University of Nairobi lecturer.

Oil companies say they are yet to clear old stocks bought when international crude prices were still high. Besides, the weakening of the Kenya shilling is cancelling out any savings made from reductions in international oil prices. In the past month alone, the Kenyan currency has suffered 15% devaluation against the dollar.

Harsh taxation measures imposed by the Kenya Revenue Authority (KRA) to curb oil smuggling have placed a heavy toll on prices. KRA demands payment of oil taxes before the product is released for sale, a measure that forces oil companies to borrow amidst a worldwide credit crunch.

Meanwhile, taxes take up almost half the retail price of fuel in Kenya. The state has been urged to cut down expenditure in order to ease the burden on the Kenyan consumer. However, with a giant cabinet of 42, there are no prospects of tax cuts any time soon.

High fuel prices have had a domino effect on electricity tariffs, which have risen over 100% since June 2008. Manufacturers have threatened to relocate their plants lamenting that Kenya’s energy costs are among the highest in the world in spite of erratic power supplies. Businesses must operate fuel-powered standby generators which further drives up the energy bill. Already, hundreds if not thousands of jobs have been lost as industries cut production to a bare minimum.

If the government imposes price controls on fuel and other essential commodities, suppliers will not be willing to sell at a loss and severe shortages will arise – Zimbabwe style. A black market will emerge with the phrase ‘consumer-exploitation’ assuming a sinister meaning altogether.

Black markets are not subjected to quality standards and are controlled by criminal gangs. Shops and supermarkets will be empty as the Mungiki, Taliban and others have a field day smuggling essential commodities through the back streets. Kenyans will waste many hours queuing for items that should normally be readily available.

Such is the harsh reality should the government re-introduce price controls.

Raila succumbs to ODM job promises

Kenyan Prime Minister Raila Odinga, must be ruing that day in December when he promised top government jobs to the ODM rank and file.

“The government is very big and there are enough jobs for everybody in ODM,” said Raila in Kiswahili when he was running for the presidency. ODM aspirants who had lost the party primaries would be employed in the civil service, diplomatic corps, judiciary, security services and state-owned corporations.

It is because of this promise that rumbles are being experienced not only in the civil service but within the ODM party. Its obvious that some people currently in top public positions will have to give way to political appointees. On the other hand, its also rather obvious that there are only limited positions to be distributed among ODM hopefuls.

Matters are made worse by the fact that ODM is in a coalition with President Mwai Kibaki’s PNU and Vice President Kalonzo Musyoka’s ODM-Kenya. They are all eyeing the top jobs in order to reward their own followers.

Its largely because of delays in awarding government jobs that ODM is experiencing a crisis. Indeed, the Grand Opposition of legislator Abaabu Namwamba is a product of politicians disappointed at being left out of the cabinet. Amidst growing dissent, ODM is moving fast to assuage discontent within its masses.

With impending retirements and reshuffles within the public service, the party may have found the opportunity to deliver on its December promise. Top jobs at the Kenya Revenue Authority, KenGen, Posta among other large state-controlled organizations are up for grabs. The party also wants to appoint permanent secretaries, diplomats, military commanders and judges. Already, ODM friendly lawyers are lobbying for the removal of Chief Justice Evans Gicheru.

Recent changes are a pointer of things to come. Kenya Ports Authority’s Abdullah Mwaruwa was retired last month and a replacement is yet to be found amidst lobbying that the job should be taken by someone from a coastal ethnic group.

At the Rift Valley Railways, South African Roy Puffet, was fired and his seat given to ODM backer, Mr Brown Ondego. Meanwhile, the government declined to extend the contract of a Canadian chief executive at the Kenya Power and Lighting Company. Mr Don Prescott’s job went to a Kenyan from the president’s ethnic group.

Last week’s debacle at the National Social Security Fund (NSSF) over its chief executive provided a glimpse of the tussles within government over political appointments. Labour Minister, John Munyes, used corruption allegations to dismiss NSSF Managing Trustee, Mrs Rachel Lumbasyo. The Labour Minister immediately appointed Mr Fred Rabong’o in her place.

The decision was met with uproar by NSSF’s staff. While Mrs Lumbasyo had spent years at the corporation before her appointment as Managing Trustee, Mr Rabong’o is a public relations consultant with no known experience in pension funds administration.

NSSF’s board of trustees, consisting of the Central Organization of Trade Unions (COTU) and the Federation of Kenya Employers (FKE) immediately rejected the appointment by Munyes. The situation became complicated because a Managing Trustee in NSSF cannot make decisions without the approval of COTU and FKE.

The matter went to Raila’s office at Treasury Building and it was resolved that Mrs Lumbasyo complete her term at NSSF. However, almost immediately, Raila overturned the consensus and sent Mrs Lumbasyo packing. Raila instructed Munyes to recruit a new Managing Trustee in coming months. Canvassing for the job among the pool of political appointees is in high gear.

Within the same week, the government swept out the command of Kenya Prisons and replaced it with outsiders. The new prisons commissioner, Mr Isaiah Osugo, was an officer with the Criminal Investigations Department (CID). He will be assisted by former Administration Police commandant George Macgoye. Reaction from prison warders has been muted so far. The warders went on a mutiny several months ago protesting poor housing and corrupt leadership.

The Kenyan people are concerned that politicians are sacrificing merit and technical ability for the sake of pleasing their cronies. Truth is that the ordinary Kenyan is unlikely to get a civil service job any time soon. Majority of people whose names are being floated for top government jobs are individuals who were in public service since independence and who were previously fired for mismanagement.

It is these same individuals that are responsible for Kenya’s downturn as indicated by depressing economic and social statistics. State corporations took a downward plunge from which recovery has been difficult, if not impossible.

A large percentage of candidates being mentioned for political reward appointments have been implicated in corruption scandals that led to the collapse of strategic organizations. The irony is that these individuals are extremely wealthy and they don’t really need their old jobs back.

It appears that political appointees will get their wishes while qualified and hardworking citizens stagnate in the morass of unemployment. For such is the state of Kenya.

Mungatana a nuisance to Coast province

The raving antics of Danson Mungatana provided an amusing side show in the past but by purporting to “report” Prime Minister Raila Odinga to President Mwai Kibaki, the Garsen MP is certainly over-reaching himself.

Danson Mungatana

Danson Mungatana

Coast people are openly expressing widespread disgust concerning Mungatana’s latest tantrums. His utterances are made worse by the fact that he is considered a Kibaki ally in a region that was solidly behind Raila’s presidential ambitions. While Raila’s ODM won the hearts and minds of the Coast through its Majimbo crusade, Mungatana was like a lone voice in the wilderness as he crowed on the merits of a unitary system of government which the Coast blames for backwardness in the province.

Incidentally, the threats by Mungatana against Raila have now put the two in a reversal of opinions. Prime Minister Raila Odinga wants the chief executive of the Kenya Ports Authority (KPA) to be appointed on merit, regardless of ethnicity. Mungatana and his new found allies maintain that the head of KPA must come from a coastal ethnic group.

Raila says that KPA is a national asset where every Kenyan has a right to employment. “No,” says Mungatana, who has stated that KPA is an asset for the exclusive benefit of the Coast.

Coast people are beginning to see Mungatana as an opportunistic politician who is now jumping onto the bandwagon of Coast nationalism in order to win popularity. Yet, in previous years, Mungatana has dismissed the nationalistic sentiments at the Coast as a waste of time. In his six years as MP, Mungatana has supported a unitary system of government. His own cross cultural parentage could have been the reason why he opposed regionalism.

Mungatana became a critic of Kibaki after the naming of the giant coalition cabinet in April this year. He was among young MPs who were disappointed by not being named ministers in spite of having put up a tough fight for their godfathers. To be fair, Mungatana was not the only Young Turk to face a crushing disappointment last April. The so-called grand opposition is composed chiefly of people who had expected bigger takings.

So bloated has Mungatana’s ego become that he is now challenging his mentor, President Kibaki, in the battle for the presidential succession come 2012. Mungatana has said he is interested in high office, either the premiership or the presidency. But it’s not Kibaki that Coast people care about.

Raila’s intervention in KPA matters is viewed as a sign that the Prime Minister is implementing ODM’s agenda in the region. During last year’s campaigns, ODM promised to revive stalled industries at the Coast, such as cashewnut farming and the Ramisi Sugar factory. ODM also promised to revamp the ailing tourism industry and to improve roads, railways and other infrastructure at the Coast. Thus, Raila’s intervention in KPA affairs is seen as a welcome move in that direction. As usual, Mungatana is, once again, frustrating the aspirations of the Coast.

Mungatana’s political flip-flopping is symptomatic of Kenya’s leadership characteristics. By expressing disgust with Mungatana, Coast people are really voicing frustration with Kenya’s political class. People who were regionalists of the past are now proponents of the unity state. Others who were solidly for a unitary state are now die-hard Majimboists. The reformists of the past are the oppressors of today while the oppressors of yesteryears pretend to be champions of democracy. People who used to condemn genocide just a decade ago now support ethnic clashes as a legitimate tool for achieving power.

There’s nobody left to condemn anything. Kenya has become a society where might is right. Social values are so hideously tarnished that wrong has become right and to do the right thing is to be condemned for foolishness. For all these, the politicians are to blame. But Kenya’s citizens are also to blame for voting unscrupulous characters into office.

Meanwhile, former colleagues of Mungatana at the University of Nairobi’s School of Law can be found wondering at the transformation of the formerly shy student. His college years were largely uneventful and non-controversial – a stark contrast to the man he has grown to become.

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By Stanley M. Mjomba – Coast affairs correspondent.
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Motorists angered by shoddy plates

Motoring columnist, Gavin Bennet, once described Kenyan number plates as resembling, “pieces of battle field shrapnel.” Evidence collected from the streets of Nairobi shows that the analogy was quite correct.

Irregular cutting and lack of

Irregular cutting and lack of alignment.

Clearly, this number plate was cut by hand.

Clearly, this number plate was cut by hand.

Kenyan motorists have decried the poor standards of licence plates issued by the Kenya Revenue Authority. “It doesn’t make sense to spend millions of shillings on a good car and then have to fix poorly done plates that are worse than jua kali material,” goes a popular refrain. On its part, the Kenya Revenue Authority says it is working to improve the quality of number plates but puts the blame on the Prisons Department, whose inmates make the plates.

Bus, truck operators irked by new tax

Theres anger and consternation in the transport sector, as the Kenya government placed harsher taxes in a bid to boost revenues hit by political violence early this year.

Commuters look for buses in Nairobi\'s Tom Mboya street.

Matatus on Nairobi’s Tom Mboya street. A new tax will result in higher inspection fees for matatu and truck owners.

Inspection fees for public transport vehicles and trucks will now be pegged on weight and carrying capacity, according to a report in the East African Standard. Previously, the inspection fee was a standard Shs1,000 (US$16). Now, a 14-seater minivan (or matatu) is expected to pay Shs11,000 ($180) as an annual inspection fee. Trucks will pay Shs1,500 per tonne. This means a 26-wheel truck with a carrying capacity of 40 tonnes will have to pay Shs60,000 ($984).

Majority of matatus are owned by small scale operators living in slums and who cannot pay Shs11,000 at short notice. Commercial truckers will simply pass the costs to their clients, with possible consequences on the prices of consumer goods.

The tax is described as an “advance tax,” meaning it has to be paid before the inspection officer begins to look at your vehicle. Passenger and commercial vehicles in Kenya must be inspected at least once a year.

Matatu and truck owners say they government has ambushed them with the tax. There was little publicity about the changes and most transporters had not budgeted for the new tax.

Fuel prices hit 100 shillings

The price of fuel hit a historical high of Shs100 per litre of petrol, creating strains on households already struggling with rising food prices.

Fuel stations in Nairobi adjusted their pump prices to Shs100 this week for unleaded petrol and Shs90 for diesel. Oil companies say the price hikes are a direct consequence of rising international crude prices, currently hovering at the $120 a barrel mark.

Kenya’s government has traditionally frowned on continued oil price increases but, in a liberalized market, price controls are out of the question. The Ministry of Energy has, in the past, hinted at reintroducing price controls, repeating the popular refrain that multinational oil companies are “milking” Kenyans. The multinationals defend themselves arguing that with market uncertainties, their margin per litre is worth only a few cents.

The only option Kenya’s government can take in reducing pump prices is by cutting taxes, which currently constitute almost half of what Kenyans pay for fuel. However, the government is unlikely to starve itself of revenue especially with a giant, 40 member cabinet putting pressure on state funds. Political promises made in last year’s presidential campaigns will require billions of shillings to become a reality. Reconstruction in the wake of ethnic and political violence early this year necessitates additional taxation on the economy.

So much is the pressure on the state to fund reconstruction and development that a major fund raising was held last Monday to raise Shs29 billion from well wishers. Less than Shs1 billion has been collected so far.

Oil companies have blamed the Kenya Revenue Authority (KRA) for high pump prices. Two years ago, KRA introduced the collection of advance tax payable at the port of Mombasa before oil is allowed into the country. Advance tax forces oil companies to borrow money. Interest payments on the loans places extra costs on oil, so much that when advance tax was introduced, prices immediately shot up by Shs3 a litre. The KRA is happy, saying that advance tax has almost eliminated oil smuggling.

International analysts fear that crude prices could reach $200 a barrel before the end of the year. If that prediction passes, Kenyans should brace for harsh economic times. An impoverished population hit by rising prices should be a cause for concern to Kenya’s ruling elite.