How oil marketers mint millions selling air

How oil marketers mint millions selling air

When the Kenya Pipeline Company declared massive losses of fuel passing through its systems, oil marketing companies came out with guns blazing.
The marketers protested the pipeline losses and branded it a scheme by the Kenya Pipeline Company (KPC) officials to steal their product and sell it through cartels that end up undercutting their market. At the height of the protests in December 2018, top Kenya Pipeline officials, including then managing director Joe Sang left office.
KPC was using a clause in the Transport and Service Agreement with the oil dealers that allows up to 0.25 per cent loss of product. One would easily be convinced that the marketers who would then be compensated through adjustment in the pump prices made the complaint as a voice of reason to protect consumers.
Unknown to many though, the oil dealers continue to enjoy free revenues milked from consumers under an arrangement that allows them to ‘lose’ millions of litres of fuel from their own storage facilities and claim compensation from the energy regulator.
The marketers, who vehemently opposed the loss assessment of fuel at KPC that assumed 0.25 per cent of the product through the pipeline would be lost have been enjoying a similar loophole that allows them depot losses of 0.45 per cent for petrol and 0.25 per cent on kerosene and diesel.
The allowance essentially means out of the 211 million litres of diesel consumed in September, the marketers could be allowed to lose close to a million litres and claim over Sh100 million in depot losses alone. The claim is then passed down to motorists through the monthly prices set by the Energy and Petroleum Regulatory Authority.
A tanker truck that used to haul oil products, carries crude oil during a pilot scheme to export crude oil, as it arrives at the Kenya Pipeline Company in the port city of Mombasa© REUTERS/Joseph Okanga A tanker truck that used to haul oil products, carries crude oil during a pilot scheme to export crude oil, as it arrives at the Kenya Pipeline Company in the port city of Mombasa Going by the September sales figures of 458 million litres for all the three products, the marketers made over Sh200 million, translating to more than Sh2 billion per year without having to sell anything.
Supplycor Chairman who is also KenolKobil Managing Director Martin Kimani did not want to discuss in detail why the oil marketers burden consumers with losses in their own storage.
“Pipeline losses and depot losses are very different but we can discuss it,” Mr Kimani said.

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Supplycor was in the frontline with the push that the 0.25 per cent pipeline losses were part of the scheme to steal fuel and demanded that an actual loss be used instead of the assumed capping, which was proving unbearable to consumers.
The OMC’s even called for a stock audit at the Kenya Pipeline depots at the height of the protest that saw the suspension of senior managers at KPC in December 2018.
Very little has been heard about the audit that was meant to be done by March despite having been completed, according to the industry stakeholders, who also claim there is more to hide in the “incriminating” report.
The marketers who contracted London-based Channoil Consulting Limited at Sh39 million to carry out the forensic stock management audit at KPC spanning three years maintain the process is complete save for a few consultations.
Mr Kimani only said the process had been completed with stakeholders still discussing the findings amid claims that the report had indicted some of the major dealers.
Related slideshow: The world's top oil-producing countries (Provided by Photo services)








Slide 1 of 11: General view, taken 06 December 2004, of the Urucu oilfield, of state-owned Petrobras company, 663 km southwest of Manaus, in the municipality of Coari, Amazonia, northern Brazil. Petrobras announced 08 December 2004, that in January it will begin the construction of a 383 km long oil pipeline between the cities of Coari and Manaus. A first stretch of 280 km between Urucu and Coari has already been constructed. It took nearly two years, mainly for the opposition of environmental grups, to obtain the planning permission for the construcion of the stretch that will allow the oil to be taken from Urucu to Manaus, and that will require the deforestation of a 50 metre wide strip along the way. AFP PHOTO/Evaristo SA (Photo credit should read EVARISTO SA/AFP/Getty Images)

Slide 2 of 11: ON NORTHERN BORDER BETWEEN IRAQ AND KUWAIT, KUWAIT - JANUARY 22: Kuwait Oil Company workers change pipes on a drilling rig January 22, 2003 on the northern border between Iraq and Kuwait in Kuwait. Kuwait produces approximately ten percent of the worlds oil and the country has promised to increase production, as needed, in the event of a war in Iraq. (Photo by Joe Raedle/Getty Images)

Slide 3 of 11: View of the refinery Presidente Bernardes of the Brazilian state-run oil company Petrobras, in Cubatao, some 60 km from Sao Paulo, Brazil, taken on March 12, 2015. AFP PHOTO / NELSON ALMEIDA (Photo credit should read NELSON ALMEIDA/AFP/Getty Images)

Slide 4 of 11: January 19, 2012 - The Abu Dhabi Company for Onshore Oil Exploration (ADCO) building. The Abu Dhabi Company for Onshore Oil Exploration (ADCO) is responsible for exploration, production and export from onshore oilfields. ADCO is a subsidiary of The Abu Dhabi National Oil Company (ADNOC), the state-owned oil company of the United Arab Emirates (UAE) which is the world's fourth largest oil company. (Photo by ANDREW HOLBROOKE/Corbis via Getty Images)

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Slide 5 of 11: ASSALUYEH, IRAN: A general view of Phase One of the South Pars gas field in the southern port of Assaluyeh taken 26 May 2003. Oil and gas will begin flowing before year-end from Phase One of the massive South Pars field, which was developed primarily by national interests, the project chief said 03 December 2003. Gholamreza Manoushehri, managing director of state-owned company Petropars, said Phase One "will go on line before the end of December with a capacity of 27 million cubic metres (954 million cubic feet) of gas and 40,000 barrels of light oil a day, which represents daily revenue of 840,000 dollars for the gas and one million for the oil." AFP PHOTO/Atta KENARE (Photo credit should read ATTA KENARE/AFP/Getty Images)

Slide 6 of 11: A picture taken on January 22, 2018 shows a view of installations at the Nahr Bin Omar natural gas field, with flames rising from the burning of excess hydrocarbons seen in the background. Iraq will is expected to sign a memorandum of understanding with US energy company Orion on January 22 to tap gas at the oil field in the south of the country, the petroleum ministry said. The Nahr Bin Omar field, situated in the hydrocarbon-rich Basra province, is currently producing 40,000 barrels of oil a day, but only a small part of the gas from the field is being exploited. / AFP PHOTO / HAIDAR MOHAMMED ALI (Photo credit should read HAIDAR MOHAMMED ALI/AFP/Getty Images)

Slide 7 of 11: TIANJIN, CHINA - FEBRUARY 08: (CHINA OUT) A general view of storage tanks at a PetroChina commercial crude oil depot on February 8, 2012 in Tianjin, China. The International Monetary Fund (IMF) has lowered its forecast for China's 2012 economic growth to 8.25 percent from the previous 9 percent. (Photo by VCG/VCG via Getty Images)

Slide 8 of 11: The Suncor refinery in Edmonton, Canada seen here on June 17, 2015 has, according to the company, a capacity of refining 142,000 barrels of light oil a day. It is run entirely on bitumen from the oil sands in Northern Alberta. AFP PHOTO/GEOFF ROBINS (Photo credit should read GEOFF ROBINS/AFP/Getty Images)

Slide 9 of 11: KALUGA REGION, RUSSIA: Pictured in this file image dated 4 October 2018 is a new lubricant oil blending and production plant operated by Total Vostok, Russian subsidiary of the oil and gas company Total; on 15 October 2018 Total reported about the inauguration of the new plant. Total Vostok/TASS (Photo by TASS\TASS via Getty Images)



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Slide 10 of 11: A picture taken on May 10, 2016 shows over Shaybah, the base for Saudi Aramco's Natural Gas Liquids plant and oil production in the surrounding Shaybah field in Saudi Arabia's remote Empty quarter desert close to the United Arab Emirates, on May 10, 2016. Despite collapsed global oil prices, production is expanding at Shaybah, as it is in other units of the company at the centre of the kingdom's Vision 2030 drive for diversification away from oil. The Saudi government plans to sell less than five percent of the company in what officials say will be the world's largest-ever share offering, while transforming Saudi Aramco into "a global industrial conglomerate". By 2020 the company says it will have tripled its gas processing capacity from levels at the turn of the century. / AFP / IAN TIMBERLAKE (Photo credit should read IAN TIMBERLAKE/AFP/Getty Images)

Slide 11 of 11: LEMONT, ILLINOIS - FEBRUARY 01: Smoke rises from a refinery owned by Citgo, a subsidiary of PDVSA, the Venezuelan state owned oil company, on February 01, 2019 in Lemont, Illinois. In an attempt to force Venezuelan President Nicolás Maduro from office, the Trump administration said recently that it would block all U.S. revenue from Citgo to PDVSA. (Photo by Scott Olson/Getty Images)

Slide 1 of 11: General view, taken 06 December 2004, of the Urucu oilfield, of state-owned Petrobras company, 663 km southwest of Manaus, in the municipality of Coari, Amazonia, northern Brazil. Petrobras announced 08 December 2004, that in January it will begin the construction of a 383 km long oil pipeline between the cities of Coari and Manaus. A first stretch of 280 km between Urucu and Coari has already been constructed. It took nearly two years, mainly for the opposition of environmental grups, to obtain the planning permission for the construcion of the stretch that will allow the oil to be taken from Urucu to Manaus, and that will require the deforestation of a 50 metre wide strip along the way. AFP PHOTO/Evaristo SA (Photo credit should read EVARISTO SA/AFP/Getty Images)

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The oil and gas industry plays a vital role in determining the economy of a country. Here are the world’s ten largest oil producers and their share of the total oil production in 2018, as compiled by the U.S. Energy Information Administration.



10. Kuwait








Million barrels per day: 2.87

Share of world total: 3 percent



9. Brazil








Million barrels per day: 3.43

Share of world total: 3 percent



8. United Arab Emirates








Million barrels per day: 3.79

Share of world total: 4 percent





7. Iran








Million barrels per day: 4.47

Share of world total: 4 percent



6. Iraq








Million barrels per day: 4.62

Share of world total: 5 percent



5. China








Million barrels per day: 4.82

Share of world total: 5 percent



4. Canada








Million barrels per day: 5.27

Share of world total: 5 percent

3. Russia








Million barrels per day: 11.40

Share of world total: 11 percent





2. Saudi Arabia








Million barrels per day: 12.42

Share of world total: 12 percent



1. United States








Million barrels per day: 17.87

Share of world total: 18 percent



Losses that don’t exist
Part of the marketers’ fault, according to those in the know, is the lucrative payments from the losses that don’t exist.
The prolonged delay of stock audit results also keeps a tight lid on the truth of the loss that nearly grounded the country’s two main airports after jet fuel was allegedly stolen through the scheme, forcing planes to fly outside the country for fuelling.
“There’s no way they can claim innocence in this scheme. It’s only that no one has ever paid attention but they are basically making millions by selling air. How do you explain losing fuel within a fuel depot in a closed system?” an industry source posed.
“There’s more than meets the eye, and this is one of the best way to make money without doing anything.”
In all the monthly fuel prices released by the energy regulator the depot losses have been maintained at the same rate, confirming that the loss is assumed and not measured.
Energy and Petroleum Regulatory Authority (Epra) Director-General Pavel Oimeke told Smart Company that the method is an international benchmark used in including the losses at the pump pricing.
According to Mr Oimeke, although the pipeline losses are indicated in the monthly pricing formula as 0.25 percent, the actual loss is used to determine the monthly prices. “This is an international benchmark used worldwide to compensate for losses that occur due to the volatility of the product. The factor for depot losses in the petroleum pump pricing model is an international benchmark whereas the pipeline loss is actual,” Mr Oimeke said.
The same argument had been used to justify the constant loss of 0.25 percent of all the millions of litres going through the Kenya Pipeline systems until the uproar that saw Epra insist on actual losses.
Data from the Petroleum Institute of East Africa (PIEA) — the professional body for the oil and gas industry in the region — show that 5.92 billion litres of fuel was sold in the year ending December 2018, making the allowable loss of 0.25 to 0.45 per cent a multi-billion cash cow for oil marketers.
Anti-adulteration tax
The real producers of the free cash are petrol, diesel and kerosene users, who besides being hit by the marketers have six other levies and two taxes to pay for while buying a litre of petrol and diesel. Kerosene users, who are exempted from the road maintenance levy pay an anti-adulteration tax of Sh18 per litre.
Consumer Federation of Kenya Secretary-General Stephen Mutoro said the passing down of the cost was customer abuse and underlines the need for a forensic audit of fuel stock and value chain.
“Why should we lose so much fuel at the depot, whose loss and why should we pay? Are the losses natural or due to their own negligence? It borders on recklessness. It’s like someone selling fruits and charging consumers for leaving the fruits go bad. They should recover it from insurance. We should begin combing their system,” he posed.
The lucrative depot loss compensations have been kept under the radar with the OMC’s who had even physically verified stock at KPC in 2016 to check the abnormal losses while remaining less motivated to find out what they actually lose before using the blanket rate that award them the free billions.
It remains to be seen who will call out the marketers on their free cash harvest from consumers and how their argument that pipeline losses should be actual while their depot losses should remain assumed at the lucrative rates, holds as consumers continue to feel the pressure of high fuel cost in a tight economy.