GAZETTE NOTICE NO. 15803

in accordance with the provisions of sections 6 and 7 (1) and (2) of the Statutory Instruments Act, 2013. Section 6 of the Act requires the regulation making authority to prepare a Regulatory Impact Statement (RIS) for the proposed Regulations indicating the costs and benefits to the public and stakeholders. The contents of the RIS for the proposed Regulations as set out under sections 7 (1) and (2) of the Act, are discussed hereunder. 9230 9230 A Statement of the Objectives and Reasons for the Proposed Regulations The primary regulatory objective and justification for the proposed Petroleum (Importation) Regulations, 2022 is to make key elements of the Petroleum Act, 2019 operational by— (a) Make it a compulsory requirement to import petroleum products through the Open Tender System (OTS) for efficient planning and to enable the country enjoy economies of scale; (b) Recognizing the need for Government to Government arrangement for importation of petroleum products which may enable the country negotiate for discounts on product cost and freight while at the same time enabling the country to access extended credit periods from suppliers. This will save the country from the current pressures on Foreign Exchange Reserves; (c) Provide criteria for allocating capacity at common-user petroleum import facilities thereby promoting equity, open access and non-discrimination; (d) Recognizing and regularizing the role of the Supply Co- ordinator Committee (SUPPLYCOR) which at the moment plays a critical role in the petroleum import planning process but remains unrecognized in law; (e) Recognizing and incorporating the Transport and Storage Agreement (TSA) between the Oil Marketing Companies (OMCs) and the pipeline operator (KPC); (f) Consolidating and harmonizing Legal Notice No. 197 of 2003 and Legal Notice No. 24 of 2012 which all touch on importation of petroleum products. Statement on the Effect of the Proposed Regulations There exist various Regulations covering the importation of petroleum products, namely: (a) The Petroleum (Amendment) (No. 2) Rules, 2003 – L.N. No. 197/2003; (b) The Petroleum (Amendment) (No. 1) Rules, 2006 - L.N. No. 31/2006; (c) The Petroleum (Amendment) Rules, 2012 - L.N. No. 24/2012; and (d) The Energy (Importation of Petroleum Products) (Quota Allocation) (Amendment) Regulations, 2012 – L.N. No. 25/2012. The changes introduced here-under seek to consolidate the above Regulations and align the proposed Regulations to the provisions of the Petroleum Act No. 2 of 2019. Effect on the General Public The proposed Regulations seek to enforce the provisions of the OTS in ensuring that petroleum products are imported into the country in the most cost-effective manner. The Regulations will promote transparency by laying bare all costs involved in the petroleum import process and hence ensure prudence. The proposed Regulations will also bring clarity and simplicity by consolidating and harmonizing various Legal Notices touching on importation of petroleum products. As a consequence of all these changes, the general public will enjoy fair prices and security of supply of petroleum products. Effect on the Private Sector Petroleum importers will benefit from the proposed Regulations as they will enjoy economies of scale through common import planning and use of larger vessels thereby making petroleum products imported through Kenya very competitive. The Regulations will therefore ensure that interests of both the consumers and investors are well protected as required under Section 10 (hh) of the Energy Act, 2019. Effect on Fundamental Rights and Freedoms The Bill of Rights enumerates the fundamental rights and freedoms accorded to every Kenyan. There are no anticipatable negative impacts on fundamental rights and freedoms that would be realized by the passing of the proposed Regulations. The Regulations promote equity, non-discrimination and open access and also ensure that the petroleum import process is transparently done thereby protecting the fundamental rights of consumers as enshrined under Article 46 of the Constitution of Kenya. Statement on Regulatory and Non-Regulatory Options Option 1—Maintaining the Status Quo Status quo would mean retention of the various pieces of legislations guiding the importation of petroleum products into the country. The non-consolidation will promote bureaucracy making it hard for potential petroleum importers to understand compliance requirements. Failure to recognize the Transport and Storage Agreement and the Supply Coordination Committee in the existing legislations as critical enablers of the petroleum importation process, promotes lack of transparency and may lead to inefficient operations. In addition, it would imply optimum utilisation of the existing constrained petroleum infrastructure would not be addressed. Accordingly, the status quo is NOT A DESIRABLE OPTION Option 2—Passing the Regulations Passing the proposed Regulations will seek to enforce the provisions of the Open Tendering System in ensuring that petroleum products are imported into the country in the most cost-effective manner. It will also promote transparency in the petroleum import cost-build ups and hence ensuring prudence. As a result, the public will be more informed on the petroleum importation process and the rationale of selecting the importing parties. The proposed Regulations will also bring clarity and simplicity by consolidating and harmonizing various Legal Notices touching on importation of petroleum products. This will promote ease of doing business to potential investors in the petroleum import business. As a consequence of all these changes, the general public will enjoy security of supply of petroleum products. This is the PREFERED OPTION since it addresses the provisions of Sections 101 (d) and (j) of the Petroleum Act, 2019. Option 3—Other practical options The following alternative options were considered: Alternatives to Regulation Non-intervention: The Government can allow the operators to import petroleum products in a non-co-ordinated manner. This effectively means that there will be chaos in vessel scheduling at the port leading to increased freight and demurrage costs. The petroleum import cost structure will also be opaque which may lead to consumer exploitation. Further optimal use of common user petroleum import and pipeline facilities may not be realized. Incentives: The Government may choose various forms of incentives to reward low-cost importers of petroleum products. Such rewards may include tax-rebates or concessions in licensing requirements. However, this may result to increased administration costs and loss of tax revenue. Alternative Models of Regulation (a) Self-regulation: Industry players and stakeholders may be empowered to make their own decisions and determine the procedures for importation of petroleum products without the intervention of Government. There are however potential risks to this including skewed terms in favor of certain players and increased cases of non-compliance. It is also possible to have cases of sub-standard petroleum products finding its way into the supply chain. (b) Co-regulation: The Government may set terms of engagement between parties and enforcement of the Regulations vested in either of the industry players or a professional organization accredited by the Government. On their own, the non-regulatory options would be less effective, not enforceable or result to increased costs to Government (particularly costs associated with more intensive monitoring of compliance). This is not a preferred option for the reasons mentioned above. Stakeholder Consultations Stakeholder Mapping and Stratification The following were identified as the key action plan partners or sponsors: (a) Ministry of Energy and Petroleum; (b) Energy and Petroleum Regulatory Authority; 23rd December, 2022 THE KENYA GAZETTE (c) The National Treasury; (d) Office of the Attorney-General and Department of Justice; (e) County Governments/ Council of Governors; (f) The Kenya Bureau of Standards; (g) National Oil Corporation of Kenya; (h) Kenya Pipeline Company Limited; (i) Kenya Petroleum Refineries Limited; (j) Kenya Ports Authority; (k) Kenya Maritime Authority; (l) Oil Marketing Companies; (m) Petroleum Institute of East Africa; (n) Kenya Independent Petroleum Dealers Association; (o) Kenya National Petroleum Dealers Association; (p) Consumer Grassroots Networks; (q) Consumer Federation of Kenya; (r) Petroleum Outlets Association of Kenya; and (s) Kenya Private Sector Alliance. Stratification of identified stakeholders according to their needs are as listed in Table 1. Table 1: Stakeholder stratification and needs Stakeholder Classification Needs/ Concerns Desired role Engagement Strategy Ministry of Energy and Petroleum Government • Policy formulation • Co- ordination of the Open Tendering System • Setting petroleum import routes Administrative Policy and operational meetings Energy and Petroleum Regulatory Authority Government • Sector regulation including petroleum price setting Administrative None Petroleum Institute of East Africa/ Kenya Private Sector Alliance Petroleum lobby group • Capacity allocation to investors • Licensing requirements for importers • Competitive OTS process Investor representation Exploratory meeting and to be invited in the stakeholder forums Kenya Pipeline Company Limited/ Kenya Petroleum Refineries Limited Government • Capacity allocation to investors • Capitalizatio n of existing infrastructur e to include importation of other petroleum products through the Open Tendering System • Efficient planning in the importation process • Importation of products that meet pipeline operation Licensee, Storage and pipeline Logistics operator. Exploratory meeting and to be invited in the stakeholder forums Stakeholder Classification Needs/ Concerns Desired role Engagement Strategy requirements Office of the Attorney- General and Department of Justice Government Consistency with the Constitution of Kenya and other statutes Oversight role Co-opted in the review exercise The National Treasury Government To advise on the risk and required funding mechanism under the Government to Government procurement of petroleum products Administrative roles Co-opted in the review exercise Kenya Ports Authority/K enya Maritime Authority Government To facilitate petroleum imports Administrative roles Co-opted in the review exercise County Government s/ Council of Governors Devolved Government Units Efficient planning to ensure an undisrupted supply of petroleum products Administrative roles Exploratory meeting and to be invited in the stakeholder forums Kenya Law Reform Commission Government Consistency with the Constitution of Kenya and other statutes Oversight role Co-opted in the review exercise Consumer Federation of Kenya/ Consumer Grassroots Networks Civil society/ consumer protection • Consumer protection • Assured supply of petroleum products Consumer representation Invite them during public stakeholders ’ consultative forums Oil Marketing Companies Industry players Capacity allocation to investors Licensing requirements for importers Competitive OTS process Licensee/ Investor To be invited in the stakeholder forums Kenya Independent Petroleum Dealers Association/ Petroleum Outlets Association of Kenya Petroleum lobby group Inclusivity of all players in the importation process Undisrupted supply of petroleum products Investor representation To be invited in the stakeholder forums Kenya National Petroleum Dealers Association Petroleum lobby group Inclusivity of all players in the importation process Undisrupted supply of petroleum products Investor representation To be invited in the stakeholder forums Kenya Bureau of Standards Government Importation of petroleum products that meet the Kenya Standards Lead agency on formulation of standards in the petroleum sector Exploratory meeting and to be invited in the stakeholder forums EPRA published the draft Regulations in the Gazette on 31st December, 2020 for a period of forty (40) days and thereafter held public stakeholder workshops at various locations in the country 9232 9232 namely: Nairobi, Mombasa, Kisumu, Nanyuki, Nakuru and Eldoret. Comments that were received from the public both in written and verbal were recorded, reviewed and incorporated in the proposed Regulations. Cost – Benefit Analysis (CBA) The cost and benefits of the regulations were analysed as listed in Table 2. Table 2: Cost-benefit analysis Aspect Result Effect Impact Management Requirement to import petroleum through the Open Tendering System Consolidated imports thus accruing benefits due to economies of scale Positive Reduced demurrage costs due to proper planning Optimizes procurement of petroleum products hence healthy competition amongst players. Positive Reduces uncertainties in the market arising from either oversupply or under-supply (stock-outs) Simplification of the management of quality of petroleum product imported into the country Positive Consumption of good quality petroleum products Petroleum products imported under Government to Government Arrangement Long term supply contracts Positive Discounts on product cost and freight Requirement to be a signatory of the Transport and Storage Agreement Optimizes the utilization of common-user infrastructure through centralized product movement and planning. Positive Higher turn- around of petroleum infrastructure. Recognition of the role of the Supply Co- ordination Committee Optimizes the utilization of common-user infrastructure through centralized vessel scheduling provided for the Open Tendering System. Positive Higher turn- around of petroleum infrastructure. Capacity sharing and allocation Optimization and equitable sharing of the existing transport and storage petroleum infrastructure. Positive • Enhancement of efficiency in the petroleum supply chain. • Minimization of losses. • Promotion of fair competition amongst players. Monitoring and Review The identified key success criteria for the proposed Regulations are listed in Table 3. Table 3: Action plan and key performance indicator (KPIs) Action Plan Key Performance Indicator Amend licensing criteria to ensure compliance to Open Tendering System and Transport and Storage Agreements. 100% compliance Develop capacity sharing and allocation formula • Effective utilization of petroleum infrastructure • Minimization of speculation It is proposed that the above will be monitored monthly and annually to ensure continued compliance. A detailed review will be undertaken in five (5) years to ensure continued relevance of the regulations to the industry needs. Conclusion EPRA has considered all the alternatives and notes that the proposed Petroleum (Importation) Regulations, 2022 have distinct advantages and hence recommends the passing and operationalization of the Regulations. DAVIS CHIRCHIR, Cabinet Secretary for Energy and Petroleum.