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Kenya: Government Acts to Avert Petroleum Price Crisis
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The East African Standard (Nairobi)
26 April 2008
Posted to the web 25 April 2008
James Anyanzwa
Nairobi
THE State-owned National Oil Corporation (NOC) has been officially mandated to buy enough petroleum stocks to serve as strategic reserves to stabilise unpredictable domestic prices of fuel products.
The Treasury would fund procurement costs, Energy Minister Mr Kiraitu Murungi announced yesterday.
The latest move is part of the Government's effort to cushion the country against unpredictable oil prices amid escalating costs of crude oil in the international market.
In a Kenya gazette Legal Notice No.43 released yesterday, Murungi set the initial amount of the strategic stock to be purchased to the level equivalent to last 30 days of consumption.
He said procurement of the oil reserves would be funded by monies to be appropriated by Parliament in the 2008/09 financial year.
He also said Parliament would have to appropriate monies to fund additional procurement of additional stocks up to the optimal level of 90 days of consumption in subsequent financial years.
He said the strategic oil stock, which will be stored by the Kenya Pipeline Company Ltd, would be replenished accordingly to its optimal level at all times.
He said the strategic stock to be purchased and stored will include premium motor spirit, illuminating kerosene, jet fuel (kerosene), and automotive gas oil and liquefied petroleum gas.
"The strategic stock shall be maintained in order to provide a strategic reserve of petroleum products in the country and ensure continuity of supply of petroleum products in case of disruption of the products,"said Murungi.
He said all petroleum companies shall also be required to forward to the Energy Regulatory Commission their local annual sales volumes by products by the end of January in each year.
Over the last five years, Kenya has witnessed a dramatic increase of crude oil from $25 to $50 to $75 , with the commodity climbing to over $117 per barrel recently.
On the Kenyan market, premium gasoline has edged closer to Sh100 per litre sparking fears of an irreversible double digit inflation.
It is speculated that without own oil resources, there will be little that Kenya could do in the short term to cushion itself against the impact of high crude oil prices.
High oil prices and recession are inseparable and that could explain why the Government has taken the move.
In Kenya, visible inflationary impacts resulting mainly from oil prices (albeit some spill over impacts from the post-election violence) are already negatively influencing economic growth projections,with high price inflation , higher interest rates and credit squeeze starting to hit business.
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It was also expected that the Minister for Energy will proactively come up with a task force to recommend measures and regulations that should be gradually put in place to forestall the impact of high oil prices.
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