Lack of price controls and weak enforcement of quality regulations on lubricants in Kenya and Tanzania have opened the door to the wide-scale distribution of products of unverifiable quality, either through the use of fake standardization markings or by unlicensed dealers. The upshot has seen regulatory agencies take measures to reduce damage to consumers and minimize increasing losses.

There is difficulty in quantifying the losses in government revenue from the sale of illicit and counterfeit lubricants because, although lubricants are classified as petroleum products, anyone is allowed to sell them so long as they have a business permit, which does not necessarily limit the owner to sell lubricants alone, Kevin Odundo, an analyst at the Petroleum Institute of East Africa, told LubesnGreases. For oil marketing companies registered by the Energy Regulatory Commission, Kenyas governmental agency in charge of regulating the energy sector, it is easier to collect data from gas stations and retail outlets, Odundo explained.

Discovery of manufacturers and sellers of fake authentication stickers for imported products in Kenya and a belated realization in Tanzania of the need for registration of all lubricants products on the market expose the gaps in petroleum product regulations in the wider East African market, too.

Tanzania and Kenya consumed an estimated 37 million liters and 90 million liters of lubricants, respectively, in 2017. It is difficult to calculate what percentage of this consumption is illegal imports, but it is a major problem.

Unlicensed importation or supply of lubricants is not only denying government revenue but has constrained the growth of local blending operational capacity that in Kenya could be in the range of
30 percent to 40 percent, said Odundo.

Steps Taken in Kenya

There have been efforts in both countries – and more generally across East Africa – by energy sector regulators and standards agencies to enforce guidelines on the control of lubricants quality, requirements for entry into the local industry and financial practices to ensure high-quality products and safeguard revenue from product sales. But a delay by East African governments in having a common procedure for regulating lubricant quality and enforcing industry processes across several state agencies may have also hampered efforts to stop unscrupulous importers and dealers from flooding the market with low-quality products.

There are proposals by Kenya and Tanzania on how to have a common approach in the enforcement of lubricant standards in East Africa, but these will be discussed in the next East Africa Communitys standards meeting, said Odundo.

In Kenya, for example, several agencies oversee imports of finished lubricant products, base oils and additives, including the Kenya Bureau of Standards and the Kenya Revenue Authority, each with a different mandate in the supply chain. This creates confusion and red tape. Also, none of them, not even ERC, regulates the pricing of lubricant products – unlike gasoline and diesel.

There is now a proposal by PIEA to have ERC issue import licenses for all petroleum products, whether finished or in an intermediate state, and approve construction or modification of facilities used for storing, loading, offloading, blending, filling and packaging lubricants. The proposals would also give ERC authority for wholesale and bulk transportation of lubricant products.

PIEA has presented to the government proposed regulations on how to support the growth of the lubricants market and eliminate illicit and counterfeit products that deny the industry investment opportunities and capacity to create additional jobs in the economy, added Odundo.

Sticker Shock

Currently, local lubricant traders have to apply for a Standardization Mark sticker from KEBS, the government agency that sets standards for all products, materials and processes. For imported finished lubricants, KEBS has to issue an Import Standardization Mark sticker, which comes with track and trace software that identifies fake marks and prevents counterfeit products from coming onto the market.

The ISM sticker issuance process has come under scrutiny, when it emerged that fake stickers for finished products were being found on untested and unverified goods. Director of Public Prosecutions Noordin Haji said in a statement that KEBS has been issuing ISM stickers that are prone to photocopying, scanning and misuse by unscrupulous traders, thereby defeating the purpose of its procurement. The statement was made in relation to criminal proceedings against a company contracted by the government for the supply of stickers found to be unfit for purpose.

For KEBS to issue an ISM sticker for an imported lubricant or an SM sticker for locally blended or manufactured products, they must undergo laboratory tests either by KEBS or a contracted company, such as London-based inspection, product testing and certification firm Intertek, to verify compliance with various standards.

Some of these standards with which lubricant products must comply include KS IS0 6247:1998 for foaming characteristics, KS 13357-1:2002 for confirmation of products filterability in the presence of water, and KS 13357-2:2005 for verifying the filterability of the lubricating oils as a procedure for dry oils. KEBS also says that products must comply with KS IS0 2137:2007, which determines the penetration of lubricating greases and petrolatum, commonly known as petroleum jelly, made from slack wax.

The standards agency introduced the Pre-export Verification of Conformity to Standards Program in 2005 to ensure the safety and quality of all imported finished products and to cushion local blenders and manufacturers from unfair competition.

In February 2018, it renewed its contract with Intertek to operate the program on its behalf in several product source markets, including leading petroleum products exporters to Kenya such as India, the United Arab Emirates and elsewhere in the Middle East.

This effort is being bolstered by KEBS making spot-check visits to lubricant facilities, storage depots, retail outlets, supermarkets and other business premises in order to inspect products for conformity. In addition, the agency said it could respond to specific complaints and visit premises where non-compliance with standards has been suspected.

Rationalization

Progress is expected in streamlining the Kenyan market when a proposal to revise and develop more effective regulations is taken up by the Petroleum Institute of East Africa, oil marketing companies, KEBS, KRA and the National Environment Management Authority.

The regulatory regime in Kenya is not replicated in other East Africa markets such as Tanzania, Uganda, Rwanda or Burundi. The only aspect that these other countries have agreed on is the imposition of a 10 percent duty on imported base oils and additives and a 25 percent duty on all imported finished lubricants to protect and support the regions lubricant business.

However, lubricants especially from the United Arab Emirates still land in Kenya at competitive prices, despite the 25 percent import tax, probably as a result of economies of scale in the Middle Easts lubricants industry, Elvis Kahi, lubricants territory manager at the National Oil Corporation of Kenya, told LubesnGreases.

Because of enforcement challenges, finished products could be smuggled into the region and distort the market. This has affected lubricants and liquefied petroleum gas to some extent, he said.

Tanzania Under Pressure

Tanzania has been hit hard by importers and dealers circumventing the countrys regulatory regime, according to the Energy and Water Utilities Regulatory Authority. According to an April 2018 EWURA report, unlicensed lubricants operators can lead to non-conforming lubricant products on the market, tax evasion, the creation of an uneven competitive playing field and inaccurate data with regard to lubricant products supply and demand in the country.

The challenges encountered by [EWURA] in obtaining accurate data particularly on imported lubricants include existence of many un-licensed operators and many entry points where lubricant products enter the country, the report said.

One EWURA spokesman told local media that fake, substandard and recycled lubricants were rampant in the country, causing damage to cars and machinery at great loss to owners.

There have been attempts in both Tanzania and Kenya to enforce compliance with the registration of lubricant operations and also on the import of products in collaboration with the respective countries revenue authorities.

EWURA, which estimates that around one-third of total Tanzanian lubricants demand in 2017 was imported, has over the past year impelled lubricant operators to produce the regulators license whenever they apply for an import license from the Tanzania Revenue Authority.

It set a deadline of March 31 for registrations to be made, after which time EWURA will prevent any dealers from importing, producing or distributing unregistered lubricants. It is collaborating with the Government Chemist Laboratory, Tanzania Bureau of Standards and the Fair Competition Commission for implementation.

This, said EWURA, was the best approach to identify unlicensed operators, ensure they become licensed and make sure risks were minimized or eliminated through effective regulation and control of lubricant business.

As Kenya and Tanzania push for a more regulated lubricants market, the time has come for both governments to create a partnership among law enforcement agencies, oil marketing companies and lubricant consumers to ensure the rule of law is upheld and strong enforcement of quality standards in eliminating counterfeits for sustainable market growth.