New directives by energy regulator throw aviation industry in wilderness

Circulars issued by the energy regulator on April 19 and May 19 on jet fuel providers have created unprecedented confusion among major stakeholders in the aviation industry especially as regards their intended objectives and implementation.

The circulars say in part that all traders of jet fuel are required to adhere to regulations that are applicable to full fledged Oil Marketing Companies (OMC). It is obvious, however, and market sources confirm that indeed the target of the regulator is foreign and local intermediaries who fall neither under the definition of OMC nor traders.

If the new circulars are implemented, it will not be different from demanding a travel agency or a holiday provider to have a fully-fledged airline license by virtue of engaging in selling of airline tickets.

All around the world, there are facilitators in systems that function as ‘consolidators of services’ or as a one-stop-shop that link direct providers in a user friendly manner to the end users in the market. This should be encouraged.

Other noticeable facilitators in the system are freight forwarders who link a shipper of cargo with a shipping source in air, sea or ground channels. By definition, a freight forwarder is a consolidator of cargo. Freight forwarders leverage their scale of quantity to exert the best of rates/channels among sea, air, and land actual providers. If a similar equation is applied in this case, a freight forwarder would be required to have its own licenses and assets as an airline, shipping line and ground transport which goes against common sense.

The newly published rules on aviation will force all facilitators to have own OMC licenses thus compelling them to own infrastructure.

Currently, Jomo Kenyatta International Airport (JKIA) is served by seven OMCs and it was long established that competition is too big for a market of the size of JKIA. The airport’s aviation fuel market is approximately 756 million litres per year. Dubai Airport with a market size of 9.2 billion litres, 12 times the size of JKIA annually, is served by only 5 OMCs. The new regulations as stated in the recent circulars will force local and international facilitators to have their own assets, effectively turning them into oil marketing companies, crowding that market even further.

Presently, a facilitator will partner with an existing OMC which is akin to a travel agency contracting with an airline to sell tickets or a freight forwarder tying up with an airline or shipping line for cargo space to serve their clients’ needs so as to minimize the disruption in the OMC market.

Should the EPRA directive be implemented, international and local facilitators will need to procure own fuel infrastructure investment locally within 60 days from the day the directives take effect. This is not practical. This move appears mala fide. It is designed to protect some disgruntled OMCs who fell behind the market share due to their malpractices with airline customers.

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