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Add storage costs to pricing regime, say firms [Nation (Kenya)]
[March 24, 2014]

Add storage costs to pricing regime, say firms [Nation (Kenya)]

(Nation (Kenya) Via Acquire Media NewsEdge) Lack of a clear framework to guide integration of new oil storage terminals into the fuel pricing formula used by the Energy Regulatory Commission has seen oil marketers shun private storage facilities.

This has created pressure on the existing space at the Kenya Pipeline Company, Kenya Petroleum Refineries Ltd (KPRL), and the Kipevu oil storage facility.

The ERC has had to publish proposed regulations seeking to reduce the minimum fuel stocks to 15 days, from the current 22 days.

The move puts fuel consumers at risk of inflated prices in case of fuel stockouts resulting from international tensions.

The formula currently used by ERC to set monthly fuel prices was adopted based on a market study carried out in 2008.

Though it has remained unchanged, ERC maintains that it takes into consideration all costs related to purchase of fuel stocks, including fees charged for storage at private depots.

"Our current pricing formula takes into consideration the cost of storing fuel, both at public and private facilities. It is based on a market study conducted in 2008 which considered several other costs incurred in purchasing fuel products," said ERC director for petroleum Linus Gitonga in a telephone interview.

Private investors have faulted the Ministry of Energy and Petroleum and the ERC for failing to review the pricing formula to take into consideration new storage fees, especially from facilities that have come up after the formula was adopted.

"The Energy Ministry, ERC, and oil marketing companies are aware of the administrative constraints. A unified approach by the Ministry and the ERC is required to speed up integration of new storage to reduce demurrage, make products more available to marketers, and increase inventory to cushion consumers in the event of risks to supply," said Merlin Figueira, general manager of VTTI Kenya Ltd in an email interview.

VTTI commissioned its $60 million terminal with a storage capacity of 110,000 cubic metres in January 2013 but only 7 per cent of the space was utilised during the year.

ERC estimates the country's total fuel consumption at 4.5 billion litres a year.

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