Small dealers fight to stay afloat in volatile fuel field in Rwanda

Saturday October 15 2016

Cost of importing fuel and the ever changing forex rates hurt small fuel dealers in Rwanda. PHOTO | CYRIL NDEGEYA

Cost of importing fuel and the ever changing forex rates hurt small fuel dealers in Rwanda. PHOTO | CYRIL NDEGEYA 

By Moses K Gahigi

The changing dynamics in Rwanda’s petroleum market and forex risks are forcing fuel dealers out of business.

Information from the market show that after all petroleum dealers have purchased fuel, the big dealers who also own fleets liquidate their supplies faster, and go back to replenish their stocks at an even lower price before the smaller dealers sell out their previous stock.

Although there seems to be no foul play this has left the smaller players stuck with the expensive stock at a time when the big dealers are selling at a lower price to the same market, a situation which has worked against them.

“The problem is that you have people who are transporters and at the same time dealers in petroleum products. A company which is importing, that also owns its fleet will always have an advantage over you, it can decide to have zero rates on fuel and make a lot on transport, in some markets like in Kenya this is not allowed” said Rugadya Ronald, the managing director of Mogas Rwanda.

The big players who enjoy these advantages are said to be Kobil, Mount Meru and SP. “SP has a transporter through its sister company Petrocom, Mount Meru has Meru logistics, these are the only ones enjoying at the moment, they must be making profits” he added.

“We end up selling the same product at the same price with people who stocked it at a much lower price,” noted another dealer who preferred anonymity.

The turbulence in the market has forced a number of petroleum dealers to exit the market. “Job petroleum has exited due to forex challenges, source oil, decentre have closed, while others like Hashi have stopped importation” he said.

A local importer incurs $380 for every 1,000 litres of diesel, and Rwf303,090 ($363) for every 1,000 litres of petrol to Dar es Salaam but he has to incur an extra Rwf78,000 ($100) transport fee and Rwf20,000 ($26) clearance fees for every 1,000 litres from the port to Kigali.

That makes gives the dealer who also own fleets Rwf79,000 ($100) transport fee to play with, giving them flexibility in product pricing.

An industry expert said, the smaller dealers are losing twice, noting that after they sell the product at a loss, they also lose while buying dollars, which have kept appreciating against the Rwandan franc.

“The safety net that Rura put for us on forex losses is very low, why shouldn’t Rura consider this when setting the pump prices,” lamented Mr Rugadya.

“The pricing formulas should recognise the forex risks and the cost of financing, that would protect the importers. Most importers have stopped importing because the working capital increases due to the forex and transport costs, and re-exporting would increases the cost of financing,” he added.

Competition

Mogas for example loses 50 per cent on the direct profit margin, with analysts saying if the prices continue dipping, more fuel dealers are likely to close, which is likely to affect the country’s re-exports to Burundi, DRC and lead to loss of taxes from the fuel business.

“They may be right or wrong, we are regulating the competition, they should lodge a complaint suggesting the challenges they are facing, from there we can see what we can do on the regulatory side” said Beata Mukangabo, head of legal, consumer and economic regulation department at Rura.

Despite the downward trend of fuel prices since last year, which has brought the pump prices down, the transporters have not reduced transport fares, something which has bothered passengers.

Responding to this, she said “When we are fixing transport tariffs we put a range on the minimum and maximum price changes, the range has not yet been reached, we shall revise the tariffs are downwards once we reach that point,” she said.

“We put a range such that we don’t change every time, the market needs some stability” she added.

As of September, the prices for diesel and petrol were both at Rwf948 per litre, as we speak the prices have dropped to Rwf864 for diesel and Rwf888 for petrol.

Since last year, the global oil prices have been falling, having adverse effects on oil producing countries. The prices at one point fell more than 70 per cent compared with June 2014 levels.

A barrel which used to levitate around Rwf71,000 ($90) to Rwf79,000 ($100) before the slump, has been between Rwf31,000 ($40) and Rwf39,000 ($50), since the turbulence begun, although it has currently increased to Rwf42,000 ($53) a barrel.