11 February 2017

Kenya: Fuel Adulteration Cartel Operates Despite Crackdowns

A powerful cartel involved in fuel adulteration and dumping continues to operate with impunity despite recent crackdowns, investigations by the Nation reveal.

The network, stretching from the port of Mombasa to the mainland, is said to involve wealthy and powerful individuals capable of compromising law enforcement agencies to keep the empire running while posing danger to motorists and manufacturers as well as damaging Kenya's reputation as a source of petroleum import.

After the Energy Regulatory Commission (ERC) came up with kits for detecting kerosene to flag out adulteration in diesel and petrol, heightened crackdowns in the adulteration dens and the recent ban on night transport, the cartels are now said to be increasingly diversifying their activities to large companies using diesel-powered machines.

Edward Kinyua, the ERC's acting director for petroleum, told the Nation that statistics indicate the number of petrol stations caught with adulterated fuel had fallen and the regulator was shifting focus to factories.

"For the quarter ending December 31, 2016, 13 cases of adulteration (in petrol stations) were confirmed. This marked a reduction of 61 per cent from the previous quarter. However, we are aware that the unscrupulous traders in this industry have resorted to other means of survival such as supplying the adulterated fuels to industrial set-ups," he said.

START TESTING

He explained that the new tactics had prompted the regulator to start testing fuel in bulk storage facilities in industrial setups.

"ERC has also embarked on a sensitisation programme for industry owners and operators to enlighten them on the use of the self-test kit," Mr Kinyua said.

Fuel adulteration is the mixing of lower priced petroleum products such as kerosene with higher priced products such as diesel or super petrol while dumping is the selling in the local market products meant for export.

Dumping in particular has become so lucrative that sources in the energy sector say some retailers running international brands are thought to have joined in. Petroleum experts say the addition of kerosene to diesel can cause serious damage to engines, sometimes causing vehicles or machines to stall. The adulterated fuel also fails to fully combust, leading to excessive exhaust smoke by engines causing pollution.

The regulator began putting a chemical marker in kerosene for monitoring its use in adulteration through the testing kits. The ERC has had two inspection teams that included officials from the Kenya Revenue Authority and the Kenya Bureau of Standards that traverse Kenya throughout the year testing motor fuels at various petrol stations.

INVESTED HEAVILY

A member of the inspection team who did not want to be named, however, said the cartels have invested heavily in the illegal trade and are so powerful that some petroleum road tankers impounded for dumping are released immediately. He gives an example where a magistrate had to conduct a court case along the road late in the evening and ordered the release of trucks found carrying fuel that had allegedly been ferried across the border.

"We were still looking for the owners, so when the order said we escort it to the owner, I was shocked. We ended up asking the magistrate to guide us to who the owner was. Actually we noticed the trucks had fake number plates," the source told the Nation.

It is estimated that at least 87 cases, each involving at least 10,000 litres of either dumped or adulterated fuel, are ongoing in the courts amidst heavy interference from the powerful network.

According to our source, the cartel also forges petroleum dealership licences to avoid the risk of theirs being withdrawn as the penalty of not less than Sh1 million remains a walk in the park for the criminals. The current proposed penalty of not less than Sh5 million in the Energy Bill has taken too long to materialise and fingers now point at the cartel as being behind the delay.

DONE LITTLE

Even the introduction of more tax on kerosene to narrow the price gap with other petroleum products has done little to deter them since the differential in tax between kerosene and diesel, which is the main driver of adulteration, is still high at about Sh21 per litre.

Insiders say powerful government officials are involved with some trucks travelling all the way from Kigali to source fuel from Mombasa, making a mockery of the pipeline infrastructure that delivers the product to towns like Eldoret and Kisumu.

The ERC recently began implementation of a night ban on petroleum tankers which encountered resistance that saw the country pushed to the brink of a fuel crisis. The regulator said it was aware that night driving was "a big facilitator of adulteration and export dumping."

It took the intervention of Energy Cabinet Secretary Charles Keter to have a letter written to Inspector-General Joseph Boinnet, protecting the trucks from arrest when caught transporting fuel at night.

In September, last year, Mr Keter led a team of police and regulators to crack down on the adulteration dens. Those involved in the inspection teams confirmed that several dens are still operational and new ones have been opened, something ERC says the Energy Bill can address.

CARRY OUT

"The biggest challenge in dealing with adulterated fuel is the elimination of the dens where the vice is perpetuated. At the moment, ERC has to rely on powers from other government agencies in order to carry out demolition of such sites. However, in the Energy Bill, ERC has been granted powers of demolition and once the Bill is enacted, we expect that enforcement will move to another level," Mr Kinyua said.

Consumers are now being urged by the ERC to report suspected cases of adulteration especially in instances where motor vehicles experience problems after refuelling.

However, after the regulator began the naming and shaming of petrol stations caught in the mess, the big brands have been keen at ensuring consumers do not expose them.

Last year, there were concerns after it emerged that Kenya's position as the preferred petroleum products importation route for landlocked East African nations was under threat because of the adulteration fuel cartels.

Data on exports to neighbouring countries reflected the effects of such reputational damage; all the countries apart from Uganda and Tanzania had reduced the amount of fuel they import from Kenya.

THROUGH KENYA

Rwanda, which had earlier been importing an average of 60 metric tons of diesel through Kenya, stopped doing so in July 2016 opting for Tanzania which it claims has cleaner fuel. Burundi followed suit and the Democratic Republic of Congo cut volumes as well.

"What these dealers don't realise is that their greed for quick money is only short-term because, in the long run, we are going to lose these markets and they will have no one to export to. It will be foolish to make quick money and lose a whole market," Mr Keter said.

"Right now we have already lost the Rwandese diesel market but we will not let these unscrupulous dealers win even if it means me going round doing the testing myself," he said.

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