9 October 2017

Kenya: Diesel Consumption Drops for First Time in 7 Years

Diesel consumption in Kenya dropped for the first time in seven years, pointing to a slowdown in an economy that uses the fuel to power industries, agricultural machinery and commercial vehicles.

Industry data shows that consumption of diesel slipped to 1.24 billion litres in the first six months of the year compared to 1.25 billion litres during a similar period last year, translating to lower revenues for oil marketers.

Kenya's consumption of diesel has been rising steadily since 2011, helped by increasing demand from key sectors of the economy.

The downturn has been blamed on prolonged drought, and removal of trucks from Kenyan roads by traders from Uganda and Rwanda in favour of Tanzania due to the build-up of election fever in that period. Road transport accounts for more than half of total fuel consumed because of the low manufacturing base and low levels of mechanised agriculture, according to data from the dealers lobby, Petroleum Institute of East Africa (PIEA). "The economy has struggled this year on the effects of drought, election tensions and our neighbours opting to transport goods through Tanzania," said PIEA chairman Powell Maimba.

The drop in diesel use came as businesses sharply cut output in a tough economic climate that saw private sector activity shrink to a nearly four-year low last month.

Stanbic Bank last week said in its monthly market survey that output tumbled for the fifth month in a row in September, weakened by a constrained money circulation and dropping customer orders.

Since the Supreme Court annulled President Uhuru Kenyatta's victory on September 1, both the opposition and the ruling party have engaged in increasingly bitter rhetoric.

The Kenya Private Sector Alliance (Kepsa) said investors are postponing projects on political jitters that has triggered a slowdown in spending, hurting businesses.

Businesses have also taken a knock from a credit squeeze as banks held back on lending in the wake of legal caps on lending rates introduced in September 2016.

But industry data shows that intake of petrol, used in private cars, rallied six per cent in the half-year period to 836.4 million litres, underlining Kenyans' love for travel in personal cars.

Petrol is taxed more compared to diesel, used to power trucks, buses, vans, tractors and factories, as part of the government's policy to encourage productive use of fuel.

More middle class homes are getting cars, increasing volume of petrol consumed and causing heavy congestion on the roads.

This also continues to grow the country's vehicles-related carbon footprint.

Official data shows that Kenyans imported 41,379 units of vehicles valued at Sh39.3 billion in the first half of 2017, an 18 per cent growth from 34,989 units that the country shipped in a similar period last year.

Urban motorists have often cited a rickety public transport system that is mainly controlled by cartels to justify their use of private cars for daily commute.

Previous attempts to introduce mass transport solutions like park-and-ride, where motorists leave their vehicles outside the city centre and use high-capacity buses or trains to the city centre, have all flopped.

The PIEA data shows that the top sectors in petroleum consumption are petrol stations at 42.7 per cent, reselling to other dealers (21 per cent), while civil aviation comes in third with a 13 per cent share.

Manufacturing is fourth, consuming seven per cent of total fuel stocks, while agriculture is eighth with a paltry 0.8 per cent appetite.

Kenya

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