Business Daily (Nairobi)
Zeddy Sambu
24 August 2009
A deepening electricity supply crisis in the middle of an economic slowdown is shaking Kenya's petroleum supply chain, opening new avenues for small players to grab market-share, the latest industry data shows.
Industry lobby, the Petroleum Institute of East Africa's (PIEA), data shows that the top four players lost market share in the past 12 months as small players broke into the high value bulk fuel oil supply business and petroleum consumption dropped with the steady rise in prices and continued slowdown in economic growth.
State-owned National Oil Corporation of Kenya (Nock) doubled its share to 7.6 per cent to become the greatest beneficiary of the changing landscape while OiLibya, Kenya's fifth largest marketer grew its stake to 10 per cent from 7.9 per cent last year.
National Oil's rapid market share growth is attributed to its winning of the contract to supply diesel to Aggreko, an emergency power producer with an installed capacity of more than 100 megawatts.
Aggreko's fuel consumption has climbed by 30 per cent since April as hydro-electric power's contribution to the national grid declined with the raging drought.
Aggreko's signing of a new emergency power supply contract with the Government of Kenya is expected to significantly increase the company's intake of petroleum and offer Nock an opportunity to further grow its market share.
"For oil companies that supply diesel and fuel oil to thermal power producers, this is harvest time," said Mr George Wachira, a petroleum industry consultant.
Kenya's petroleum market has been an oligopoly of four main players KenolKobil, Kenya Shell, Total and Caltex, but OiLibya, the fifth largest player, and National Oil have been closing the gap with steady growth of market share.
Some analysts have argued that the licensing of more than 40 small players in a small market such as Kenya's has made the retail business non-profitable leaving control of the big supply contracts as the only viable means of growing market share.
"Any small change in yearly volumes causes significant changes in market share," said an ERC official.
Nairobi remains the focal point of petroleum consumption that accounts for up to 40 per cent of the national total.
PIEA's data shows that although KenolKobil, Kenya's biggest oil marketer marginally lost its share of the business, its grip on the market remains strong at 23.26 per cent.
Kenya Shell and Total Kenya -- two of the biggest players - lost significant proportions of their market strengths during the same period, but are yet to be toppled from market leadership.
Market data also shows that sales were lower in the first half of the year, contrary to recent indications that economic recovery was under way. Consumption of JET A1 fuel dropped by the largest margin, tracking the decline of activity in the aviation and tourism sectors.
PIEA data indicates that four big players' share of the fuel market dropped from 85 per cent in June last year to 77 per cent this year.
Some industry players, however, attributed the shift in market share to the recent entry by independent traders into market segments that have been traditionally dominated by multinationals.
"Note the strength of Hass Energy. They are now dealing in more volumes and have been building a presence in western Kenya," said an Energy Regulatory Commission (ERC) official.
Mr Wachira supports the ERC's position pointing to better capitalization of independent players such as Hass Petroleum, Hashi and Gulf Energy.Apart from Hass and Hashi, which command 2.5 per cent and 1.1 per cent respectively, other strong independent players include Gapco (2.3 per cent) and Galana Oil (1.8 per cent).
The petroleum market is expected to grow at the rate of five per cent this year. Mr Wachira said an orderly and effective roll-out of the new legal and regulatory instruments (Energy Act and Energy Regulatory Commission Act) should culminate in a level playing field that will enable multinational, continental, regional and local brands to compete fairly.
Galana Oil, an independent player, which has been in the market for nearly 10 years, said an aggressive expansion drive in 2008 paid off in the form of larger market share. The company has also struggled to stave off hiccups in the national supply chain to post positive performance.
It is expected that the 'dismal' performance in the first half will lead to a flurry of marketing activity in the second half as players fight for the upcoming bulk supply contracts.
Last month, Essar - the Indian oil giant with a 50 per cent stake in Kenya's only petroleum refinery signalled its intention to enter the downstream retail and distribution market, following completion of its acquisition of the refinery stake for $7 million (Sh560 million).
Some players, however, questioned the integrity of the statistics that ranked Total - the marketer who is in the process of acquiring Chevron's assets worth 10.1 per cent of the market - in the third position. Kenya Shell, the second largest distributor of petroleum in the country, also disputed the PIEA figures, saying its stake remains at above 20 per cent of the market.
"We received the figures from KPC today and it shows that we had 20.9 per cent share of the market for the period January-June 2009. The figure of 18.8 per cent cannot be correct," said Mr Mwaura Ngaari, the external affairs manager.
He said the company that is Kenya's second biggest by market share has retained all major contracts with its customers and that the sales volumes were on the increase. "We have not lost any big commercial customer and our retail volumes are on the increase," he said.
Each month, up to 20,000 cubic meters of storage capacity at Kipevu, Mombasa is reserved for companies with emergency fuel supplies contracts.
Independent oil marketers may not necessarily own service stations, but are in resale and wholesale business.
Kenya's independent dealers (service stations) account for about 30 per cent of all stations in Kenya. They buy products from marketers without any specific loyalty and mere hunt for the cheapest price. These marketers make money as long as they have sufficient, low cost supplies to sell.
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