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By Paul Busharizi
A combination of greater diesel demand to fuel regional power stations, an ageing oil pipeline and a two-year old Kenyan tax policy on fuel firms have conspired to precipitate the current diesel shortage and ensure it will not be alleviated before the end of this year.
Lower water levels on Lake Victoria prompted the reduction of power generation at the Nalubale power dam.
As an emergency measure the Government contracted thermal power generation capacity, initially a 50MW plant at Lugogo two years ago and another 50MW plant at the Kiira Power Station in Jinja.
Under current agreements, both plants, run by UK firm Aggreko, are supposed to generate 1,500MW. It takes 278 litres of diesel to generate 1MW for 1 hour, therefore, under the current arrangement the two plants need at least 417,000 litres of diesel a day or 12.5 million litres a month.
As if that is not enough, within three months another 50MW thermal power generating plant is being set up in Mutundwe and will increase the strain on diesel stocks. The new plant could raise demand by up to five million litres a month when it comes on line.
Kenyan experience
Kenya, following the power crisis in 2000, has tried to reduce its over-reliance on hydro-power and has increased its capacity in diesel generators significantly since.
Kenya now has about 400MW of diesel thermal power capacity in operation. Burundi and Rwanda are planning another 70MW of diesel generated energy.
“The extra demand for petroleum products to power the electricity generators will have serious impact on availability of fuel in the coming months,” Kenya Shell’s managing director Patrick Obath was reported as saying last week.
More strain
All this new regional demand for diesel has put the 29-year-old Mombasa-Eldoret pipeline under strain.
As a result the Kenya Pipeline Company has contracted China Petroleum Engineering Corporation to upgrade the pipeline, a project that is expected to be complete in 15 months, offering no immediate respite from the current woes. The upgrade will cost sh725b.
On Thursday, works minister John Nasasira announced that trains had been committed to ferrying diesel from the coast to Kampala, but gave no details on the frequency or the amounts of diesel they will ship in.
However, using rail to ferry the fuel from the coast will mean an additional $20 per 1,000 litres, compared to using the pipeline up to Eldoret and trucking it to Kampala.
Policy change bites
A two-year-old policy that requires oil marketers to pay VAT and import duty upfront for petroleum imports in transit through Kenya has created further supply constraints.
Prior to the policy change, oil companies could transit fuel through Kenya and pay duties within a stated time period. However, the facility was being abused and Kenyan authorities, by changing the policy, hoped to plug the loophole.
But oil companies unwilling to tie large sums of their funds reduced the amount of petroleum they were ordering from the refinery at Mombasa, precipitating fuel shortages at the end of 2005.
Price hike
As a result of these factors diesel is selling for as much sh3,000 a litre and for the first time in more than 15 years fuel queues have been seen outside petrol stations and a diesel black market is beginning to emerge.
And there seems to be no respite from the diesel shortage in the near future.
To truck fuel all the way from the coast will mean added expense on the part of fuel companies, a cost they invariably will pass on to the end consumer.
The World Bank approval of funding for the $750m Bujagali dam on Thursday may not be a long term answer to the diesel crisis. Were the 250MW dam to come on line today it would easily bridge our 120MW power deficit and render the thermal power generators redundant.
Assuming dam construction starts in June and runs on schedule for the planned 44 months the earliest we can expect Bujagali’s power to come on line is February 2012. By that time the power deficit conservatively will have grown by another 120MW, immediately soaking up all Bujagali’s additional capacity.
Diesel driven generators are set to be a permanent fixture of our landscape so the challenge is to improve the infrastructure for the shipping fuel in from the cost. Already a contract has been awarded to the Libyan based firm Tamoil to build a pipeline from Eldoret to Kampala a development which should reduce the cost of diesel when it is completed.
We have had to learn the hard way as a country that the power outages and increased power tariffs are not a purely urban phenomenon, but have countrywide implications in terms of higher fuel prices caused by the fuel shortages and the subsequent price increases in goods and services countrywide.
Published on: Saturday, 28th April, 2007
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