OPERATIONAL RISK MANAGEMENT IN PETROLEUM

FILLING STATION IN KENYA: A SURVEY OF NAIROBI

BASED PETROLEUM FILLING STATIONS

BY

JOHN O. MAGAMBO

UNITED STATES INTERNATIONAL UNIVERSITY-

AFRICA

FALL, 2016

OPERATIONAL RISK MANAGEMENT IN PETROLEUM

FILLING STATION IN KENYA: A SURVEY OF NAIROBI

BASED PETROLEUM FILLING STATIONS

BY

JOHN O. MAGAMBO

A Project Report Submitted to the Chandaria School of Business in

Partial Fulfillment of the Requirements for the Degree of Masters of

Business Administration

UNITED STATES INTERNATIONAL UNIVERSITY-

AFRICA

FALL, 2016

ii

STUDENT’S DECLARATION

I, the undersigned declare that this is my original work and has not been submitted to any

other college, institution or university other than the United States International

University in Nairobi, Kenya for academic credit.

Signed: ________________________ Date: _________________________

John Odhiambo Magambo (ID.NO 645842)

This project has been presented for examination purposes with my approval as the

appointed project supervisor.

Signed: ________________________ Date: _________________________

Prof. Amos Njuguna

Signed: ________________________ Date: _________________________

Dean, Chandaria School of Business

iii

DEDICATION

I dedicate this paper to Our Lady of the Holy Rosary for her blessings and my family for

their prayers and a lot of support when I spent a lot of time away from them during my

study and in preparation of this research paper.

iv

COPYRIGHT

Copyright © 2016 all right reserved. No part of this project may be reproduced or

distributed in any form by any means or stored in a database or retrieval system without

prior permission from the author.

v

ABSTRACT

The purpose of this study was to examine and evaluate the operational risk management

practices in petroleum filling stations in Kenya. The accompanying research question,

that guided the study are: What are the typical Operation Risks for Petroleum Filling

Station; what are the Challenges against Management of Operation Risk for Petroleum

Filling Station and finally Best Practices for Managing Operation Risk in Petroleum

Filling Station.

The study adapted a descriptive quantitative research design. A sample of 100 was

selected from a population of 291 Petroleum Filling Stations. The tool for collecting data

was the questionnaires. Data analysis was based on both descriptive statistics (frequencies

and percentages) and also inferential statistics that include correlation tests. The

Statistical Package for Social Sciences (SPSS) was employed for analysis.

From the findings of the study, Most of petroleum filling stations in Nairobi County have

embraced the operational risk management best practices which include risk

identification, assessment, and mitigation and monitoring, this has resulted to reduced

abnormal losses. Majority of station owners, dealers and managers have domesticated

best practice of operational risk management and have effectively felt the impact of a

minimized ORM challenges.

The analysis revealed that the compliance to best practices of ORM is not only good for

success in the operations as a business enterprise in terms of a positive bottom line but

also for protection of all stakeholders including customers.

Similar study should be carried out in other counties to evaluate the consistency of the

operation risk management in Petroleum filling stations and oil industry as a whole. A

further study should focus on the causes of abnormal fuel losses and their remedies

between the deport and the stations that end up contributing to the losses in petroleum

filling stations.

vi

ACKNOWLEDGEMENT

I take this opportunity to thank my supervisor, Prof. Amos Njuguna for his constant

guidance and academic insight. I also thank Prof. Wambalaba whose guidance enabled

me develop an understanding of the subject. I am also grateful to all the respondents who

took their time to fill the questionnaires and the USIU Research Office lead by Mr. Paul

Ruto for every bit of resources and support that enabled my research activities. Not

forgetting my friend Prof. Francis Gatumo who always has been a source of

encouragement and inspiration throughout my studies in USIU-Africa; to you am

grateful.

vii

TABLE OF CONTENTS

STUDENT’S DECLARATION ........................................................................................ ii

DEDICATION...................................................................................................................iii

COPYRIGHT .................................................................................................................... iv

ABSTRACT ........................................................................................................................ v

LIST OF TABLES ..........................................................................................................viii

LIST OF FIGURES ........................................................................................................... x

CHAPTER ONE ................................................................................................................ 1

1.0 INTRODUCTION........................................................................................................ 1

1.1 Background of the Study ............................................................................................... 1

1.2 Statement of the Problem ............................................................................................... 4

1.3 Purpose of the Study ...................................................................................................... 5

1.4 Research Questions ........................................................................................................ 6

1.5 Importance of the Study ................................................................................................. 6

1.6 The Scope of the Study .................................................................................................. 6

1.7 Definition of Terms........................................................................................................ 7

1.8 Chapters Summary ......................................................................................................... 7

CHAPTER TWO ............................................................................................................... 8

2.0 LITERATURE REVIEW ........................................................................................... 8

2.1 Introduction .................................................................................................................... 8

2.2 The typical Operational Risks for Petroleum Filling Station......................................... 8

2.3 Challenges against Management of Operational Risks for Petroleum Filling Station 15

2.4 Best Practices of Managing Operational Risk for Petroleum Filling Station .............. 19

2.5 Chapter Summary ........................................................................................................ 26

CHAPTER THREE ......................................................................................................... 27

3.0 RESEARCH METHODOLOGY ............................................................................. 27

3.1 Introduction .................................................................................................................. 27

3.2 Research Design........................................................................................................... 27

3.3 Population and Sampling Design ................................................................................. 28

3.4 Data Collection Procedure ........................................................................................... 30

viii

3.5 Research Procedure ...................................................................................................... 30

3.6 Data Analysis ............................................................................................................... 31

3.7 Chapter Summary ........................................................................................................ 31

CHAPTER FOUR ............................................................................................................ 32

4.0 RESULTS AND FINDINGS ..................................................................................... 32

4.1 Introduction .................................................................................................................. 32

4.2 General Information ..................................................................................................... 32

4.3 Typical Operational Risks for Petroleum Filling Station ............................................ 35

4.4 Challenges against Operational Risk in the Petroleum Filling Station ........................ 44

4.5 Best Practices on the Operational Risks Management for Petroleum Station ............. 52

4.6 Chapter Summary ........................................................................................................ 62

CHAPTER FIVE ............................................................................................................. 63

5.0 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ........................... 63

5.1 Introduction .................................................................................................................. 63

5.2 Summary of the Findings ............................................................................................. 63

5.3 Discussion .................................................................................................................... 64

5.4 Recommendations ........................................................................................................ 68

5.5. Suggestion for Further Research ................................................................................. 69

APPENDICES .................................................................................................................. 74

APPENDIX 1: INTRODUCTION LETTER ............................................................... 74

APPENDIX 2: QUESTIONNAIRE................................................................................ 75

viii

LIST OF TABLES

Table 4.1: Level of Education ............................................................................................ 34

Table 4.2: Fraud Cases ....................................................................................................... 35

Table 4.3: Key Factor to Fuel Losses ................................................................................ 36

Table 4.4: Abnormal Losses on Super (PMS) ................................................................... 36

Table 4.5: Abnormal Losses on Kerosene (IK) ................................................................. 38

Table 4.6: Recorded Shortages after Offloading ............................................................... 38

Table 4.7: Shortages after Selling ...................................................................................... 39

Table 4.8: Manual Stock Reconciliation ............................................................................ 39

Table 4.9: Inventory Monitoring........................................................................................ 41

Table 4.10: Fuel Escort ...................................................................................................... 41

Table 4.11: Fuel Delivery .................................................................................................. 42

Table 4.12: Correlation Test 1 ........................................................................................... 43

Table 4.13: Credit Sale ...................................................................................................... 44

Table 4.14: Cash Sales ....................................................................................................... 45

Table 4.15: Adulteration of Products ................................................................................. 45

Table 4.16: Monthly Price Changes by ERC ..................................................................... 46

Table 4.17: Price Margins .................................................................................................. 46

Table 4.18: Staff Turn-Over .............................................................................................. 47

Table 4.19: Staff Training .................................................................................................. 48

Table 4.20: Training Cost .................................................................................................. 48

Table 4.21: Credit Sales ..................................................................................................... 49

Table 4.22: Amount Cash on Hand.................................................................................... 50

Table 4.23: Correlation Test 2 ........................................................................................... 51

Table 4.24: Accurate Monitoring and Recording .............................................................. 52

Table 4.25: Loss/Gain Trend Review ................................................................................ 53

Table 4.26: Staff Training .................................................................................................. 53

Table 4.27: Risk Review .................................................................................................... 54

Table 4.28: Records of Staff Training ............................................................................... 55

Table 4.29: Periodic Testing of Water ............................................................................... 55

Table 4.30: Causes of Harm............................................................................................... 56

Table 4.31: Stock Maintenance.......................................................................................... 56

Table 4.32: Fuel Transportation ......................................................................................... 57

Table 4.33: Information to Employees .............................................................................. 57

ix

Table 4.34: General Principles of Risk Assessment .......................................................... 58

Table 4.35: Fire Extinguishers ........................................................................................... 59

Table 4.36: Emergency Plan .............................................................................................. 59

Table 4.37: Compensation ................................................................................................. 60

Table 4.38: Correlation Test on Good Practices on Operational Risks ............................. 61

Table 4.39: Correlations test .............................................................................................. 62

x

LIST OF FIGURES

Figure 4.1: Position in the Organization ............................................................................ 33

Figure 4.2: Duration in the Organization ........................................................................... 34

Figure 4.3: Abnormal Losses on Diesel (AGO) ................................................................ 37

Figure 4.4: The Dip Stick Accuracy .................................................................................. 40

1

CHAPTER ONE

1.0 INTRODUCTION

1.1 Background of the Study

There are two general approaches to Operational Risk Management- traditional and

modern. The traditional ORM problem relates to an imminent threat, which requires a

tactical solution. Traditional ORM is important, however the method cannot help one

address strategic issues, such as optimizing the risk-control relationship in the context of

once risk/loss tolerance. Therefore modern ORM is designed to help senior executives

make strategic business decisions. This requires data based framework, models and

circumspect analysis. Hence a modern ORM framework, both risk measurement and risk

management go hand in hand (Khan 2008).

Operational risk being pervasive in today’s complicated, data-intensive environment,

managing it effectively requires a holistic, integrated approach backed by strong

technology, good governance, sound policies and a risk-awareness culture. Hence drivers

and owners of operational risk function including those in charge of corporate

governance; Chief Finance Officer; Chief Risk Officer and Chief Operation Officer

should have in their toolbox: loss data collection programs; risk and controls self-

assessments; scenario analysis activities, key risk indicators and powerful reporting

methods (Global Association of Risk Professional 2002).

In the oil industry properties of petroleum are a mixture of many organic substances and

presents fire, explosion, health and environmental hazards. Its precise physical properties

can vary depending on source, product specification and additives (Yerevan, Armenia

USAID 2008). Fossil fuels supply almost 80% of world energy use and will continue

doing so through to 2040 (Sieminski, 2013). According to Patterson (2015) medium-term

oil supply outlook report, OPEC countries supplied the world with 37.1%, US and

Canada 24.9%, Latin America 16.7% and Non-OPEC countries 57.4%. While PwC

(2013) African oil and gas Review, reported that Africa currently supplies about 12% of

the world’s oil and boasts significant untapped reserves estimated at 8% of the world’s

proven reserves. These reserves have increased in the last two decades from 5.8% in 1991

and 7.6% in 2001 and this trend is anticipated to continue. From proven oil reserves of

132 billion barrels, Africa produced nine million barrels of crude oil per day (bbl/d) in

2011. Eighty-one percent of this oil production came from Nigeria, Libya, Algeria, Egypt

2

and Angola in 2011. Rourke & Connolly (2003) describes the need for regulations at each

and every stage in the Oil Industry for environmental, social, health and safety reasons.

The potential impact of exploration and production activities must be considered in the

context of national and global protection policies and legislation (E&P/UNEP, 1997).

Fossil fuels in Kenya are overwhelmingly dominated by petroleum accounting for about

25% of the total imports. Although oil and gas discoveries are being made in Kenya it is

yet to start extraction and production from its reserves, it therefore entirely relies on

imports of both crude and refined oil. Over the last decade, the composition of oil imports

has switched from crude petroleum to refined petroleum fuels. This change highlights the

increasing mismatch between Kenya’s refining capacity and the demand for refined

petroleum fuels in the country and the region. Indeed, the total production of refined oil

from the oil refinery in Mombasa has been steadily declining over the last decade in spite

of the increasing demand. This decline in refined petroleum is attributed to aging facilities

leading to high inefficiency of the refinery facility at the port. Upgrading and regular

maintenance is mandatory if Kenya is to continue refining petroleum at the old refinery in

Mombasa (Institute of Economic Affairs, IEF 2015).

The consumption of petroleum products in Kenya has increased by 3.7% annually over

the last decade to reach 3,638,000 tones, in 2012. Retail pump outlets are the main

consumers with about 60% of the total consumption. The principal challenge of high

petroleum consumption is the corresponding vulnerability of the economy to price

fluctuations in the case of non-oil producing countries (Institute of Economic Affairs

2015).

However, Kenya has recently discovered some exploitable oil deposits, so far amounting

to 540 million of barrels with indications that the extraction process could start within the

next five years, even as further exploration continues. Should oil deposits be found to be

commercially viable, the government must ensure that the revenues resulting from the

exploitation of the reserve are fairly shared among the different stakeholders, in order to

prevent any protestation and discontentment in the population, as well as ensure that

adequate measures are enacted to prevent the dutch disease and the emergence of a

resource curse. To do so, the legal, institutional and policy framework governing the

energy sector specifically and the extractive sector in general must be appropriate given

3

the unique developmental challenges facing the country, in addition to its development

priorities (The Institute of Economic Affairs 2015).

Regarding gas and coal, Kenya does not import gas yet, but this should change in the near

future with the completion of a gas thermal power generation plant. Electricity production

is mainly through Hydro-power generation, although this might change with the

exploitation of a 400 million tonnes coal mine that has recently been discovered, and is

expected to power the operations of two new 960MW power plants by 2017 (The Institute

of Economic Affairs, IEF (2015).

According to Munyavi (2015), in Kenya, currently, a lot of emphasis is placed on the

safety of petrol stations, both during construction and during their operation. The

emphasis places the onus on the owners, employers or responsible entities to identify and

assess the risks associated with the construction, delivery, dispensing and storage of

petroleum products at these stations (The MITRE Institute, 2007). The regulations expect

owners to establish the identity of the dangerous substances present at their stations as

well as fire or explosive risks (Ritter, 2013). Second, owners are expected to establish

control measures for eliminating, controlling or reducing the identified risks. Importantly,

owners are expected to have controls that would reduce the negative effects of incidents

involving dangerous substances at the petrol stations (Ritter, 2013).

The Government of Kenya deregulated the oil industry in 1994 and since then the

industry has grown rapidly in the last decade; the country has seen many independent

and multinational oil companies invest in the industry (Ndambuki, 2009). Oil accounts for

about a quarter of Kenya’s annual import bill, underlining the critical role it plays in the

exchange market.

According to Institute of Economic Affairs IEF, (2015), the energy sector relies on three

main sources of energy, biomass, petroleum and electricity, at 68%, 21% and 9% of total

energy consumption in Kenya. Biomass constitutes the largest source of energy consumed

in Kenya in the form of wood fuel and charcoal, which is extensively used in the rural

areas by mostly poor households for cooking and heating purposes. Apart from poor rural

households, biomass is also used by small business, principally kiosks and restaurants

within urban centers.

4

There are over 15 major Oil marketers in Kenya and their market share based on the

volumes of fuel pushed within a given period. In the month of March, 2011, Total Kenya

was the leader at 23.4% followed by KenolKobil at 22.8%, Shell at 17.9%, Libyaoil at

11.8%, Nock at 5.2%, Gapco at 4.4%, Hass at 1.8%, Gulf at 1.8%, Hashi at 1.8%, Galana

at 1.4%, Bakri at 1.4%, Engen at 0.8%, Oilcom at 0.7%, Rivapet at 0.6% and Fossil at

0.5% of the total Kenyan market share. For a firm to remain on top in the list, then they

must ensure they push large volumes of fuel which is dependent on the availability of the

equipment at the retail outlets. The volume of fuel sold is used as the measure of gauging

how particular Marketer is positioned in the market. Large volumes reveal higher margins

since the prices are controlled and all Marketers almost sell at similar prices (Serem,

2014).

1.2 Statement of the Problem

The problem of lack of or inadequate risk management is quite profound in petrol stations

across the world. According to Munir (2013), globally, about 49.28% of risk or dangers at

petrol stations are attributed to carelessness by workers and owners of these stations.

Slips, trips and falls jointly account for about 28% of risks at petrol stations. Some of the

risks according to Raad et.al (2012) include exposure to gasoline which is predominantly

a mixture of paraffins (alkanes), naphthenes (cycloalkanes), and olefins (alkenes).

Benzene (C6H6), an aromatic component of gasoline, is considered to cause cancer in

humans, whereas other gasoline components, such as toluene, ethylbenzene, and xylene,

are not believed to cause cancer in humans (www.atsdr.cdc.gov) but may be toxic in other

ways. Gasoline also contains so-called antiknocking additives that raise the octane

number, many of which are carcinogenic. It has been widely proven that one of the major

contamination sources of the soil, air, underground and surface water has been related to

liquid fuel tank leakages, processed chemical products, toxic chemical products and

diluted rejects (Moschini et. al, 2005).

As of 1985, fuel underground storage tanks became a priority in the United States,

leading to the regulation, by the Environmental Protection Agency (EPA) of prevention,

detection and fixing of leaking in the tanks, as well as to the creation of a specific agency

(Office of Underground Storage Tanks) to supervise these aspects (EPA, 1984; 1985a;b).

Because of gasoline’s toxicity, many countries have introduced regulations aiming to

reduce the content of aromatics in gasoline (Raad et. al2012).Transportation hazard,

5

electrical fault, medical treatment cases, fire risk and housekeeping risks account for

10%, 8%, 8%, 1.2% and 1%. The chance of an incident and its consequences vary

between stations. Similarly, the action needed to prevent incidents will vary (Munir

2013).

In the US, the National Fire Protection Association (NFPA) (2014) reports that vehicle

fires at fuel stations increased steadily until the late 1990s and declined through the

2000s. Despite the recent decline, vehicle fires were still 29% higher in 2014 than they

were in 1990s and 2000s. NFPA (2014) notes that an estimated 5,020 fires and explosions

occurred at public service stations per year from 2004-2008; implying that on average,

one in every 13 service stations experienced a fire. These 7,400 fires caused an annual

average of two civilian deaths, 48 civilian injuries and $20 million in property damage

(NFPA, 2014). Of these fires, 61% involved vehicles while structure fires accounted for

12% of total incidents and 59% of the direct property damage. NFPA (2014) also notes

that 125 of fire incidents at service stations were outside trash or rubbish fires (Munyavi

2015).

The Energy Regulatory Commission (ERC), in may 2015 blacklisted and closed ten fuel

stations in the country for various reasons, including engaging in the sale of adulterated

petroleum and fuel on transit and failing to meet safety standards (Bureau of Labour

Statistics, 2014). These stations were in the major towns of Nairobi, Meru, Kisumu,

Vihiga, Laikipia, Kiambu and UasinGishu. The ERC ordered the respective County

Commissioners to withdraw the licenses of the identified stations as they were operating

against the law (Munyavi 2015). This study’s intention is to focus on operation risk as the

risk of loss resulting from inadequate or failed internal processes or systems, human

factors or external events contributing to the abnormal losses in petroleum filling stations

in Nairobi County.

1.3 Purpose of the Study

The aim of this study was to undertake a situational analysis with a specific view of

examining both internal and external factors affecting operation risk management in

petroleum filling stations in Kenya.

6

1.4 Research Questions

1.4.1 What are the typical operation risks for Petroleum Filling Station?

1.4.2 What are the challenges against Management of Operation Risk for Petroleum

Filling Station?

1.4.3 What are the Best Practices for Managing Operation Risk in Petroleum Filling

Station?

1.5 Importance of the Study

The project report will benefit the following Institutions and People

1.5.1 Organizations

The study findings will help to inform the independent and Branded Petroleum filling

Stations and the industry as a whole on different ways of how operational risk

management can be made relevant to organizational performance. In the stations, it is

important for management to keep reviewing these strategies and evaluating their

effectiveness.

1.5.2 Academia

The findings will be of great use to the academia, especially those who may wish to carry

out further research on operational risk management in Petroleum filling Stations. It may

build on the existing body of literature and knowledge.

1.6 The Scope of the Study

The study population was made up Petroleum filling Stations in Kenya. The study

concentrated on Stations in Nairobi County. The limitation of the study was the time

frame; the researcher had a limitation of time in data collection from respondents some

of whom were hesitant to freely give information. To mitigate this, the researcher

assured the respondents that the data collected was primarily for academic purpose and

that no individual personal or private particulars like names, identity numbers and

organization name were required to maintain the confidentiality of the research.

7

1.7 Definition of Terms

1.7.1 Operational Risk

Basel II defines Operational risk as the risk of loss resulting from inadequate or failed

processes, people and systems or from external events. This definition includes legal risk,

but excludes strategic and reputational risk. Legal risk includes, but is not limited to,

exposure to fines, penalties, or punitive damages resulting from supervisory actions, as

well as private settlements (Bank for International Settlements 2011).

1.7.2 Risk of Loss from Operational Failure

Khan (2008), states that Operational risk, broadly speaking, is the risk of loss from an

operational failure. Operational risk permeates all aspects of the risk universe — that is to

say it overlaps with and exacerbates all other types of risks, such as market, credit,

liquidity and underwriting risk. In fact, in the absence of operational failure, the other

risks are much less significant.

1.7.3 The Risk Management Association

RMA (2003) define operational risk as the risk of loss resulting from inadequate or failed

internal processes, people, and systems, or from external events, but is better viewed as

the risk arising from the execution of an institution’s business functions.

1.8 Chapters Summary

This chapter presents the background of the study and problem statement through of

previews studies on operational risk management in petroleum filling stations. The

chapter has also outlined the purpose of the study, the research questions, the problem

statement, the scope and significance of the proposed study.The next chapter involves a

detailed literature review based on the three research questions and the study

methodology while the fourth chapter provides the research findings. The final chapter

gives a summary and discussion of the findings as well as the conclusion and

recommendations.

8

CHAPTER TWO

2.0 LITERATURE REVIEW

2.1 Introduction

This chapter review relevant literature on all the three research questions in line with the

research project. The purpose of this study is to find out what are the typical operational

risks; what are the best practices for managing the operational risk; and what are the

challenges against management of operational risks for petroleum filling stations.

2.2 The typical Operational Risks for Petroleum Filling Station

According to the data gathered by the Energy Regulatory Commission across the country

between September 2015 and February 2016 indicates that 56 petroleum outlets tested

were found to be non-compliance after carrying out a total of 8,945 tests in 1,493

petroleum outlets with the purpose of singling out non-compliant traders. The petroleum

outlets that failed the tests were required to upgrade the adulterated petroleum where

applicable and also to pay penalties and taxes to the Kenya Revenue Authority (KRA)

before they were allowed to resume business (Kangethe 2016)

Vivo Energy Kenya closed Shell Ridgeways service station and terminated the Dealer’s

contract after a reports of an ATM card details skimming with the purpose of performing

fraudulent activities by a Pump attendant. The company apologized to all their customers

for the unfortunate incident. The move came hours after the firm also announced that it

would stop the sale of kerosene at Shell service stations to minimize chances of fuel

adulteration (ibid).

The ERC launched a retailer self-test kit for fuel products in 2015, for testing fuel upon

delivery, before acceptance into storage tanks the commission said the kits would help

eliminate illegal practices such as the diversion of petroleum products meant for export

into the domestic market. The kit uses technology known as the lateral flow device that is

easy to use and greatly reduces the time and cost of monitoring and testing petroleum

products. The commission, through Energy Act of 2006, was awarded the legal mandate

of managing the petroleum marking and monitoring program (Wangari 2016).

9

2.2.1 Fraud

The increasing rate of globalisation combined with expansion of technology and other

factors, has also increased the rate of fraud and new fraud activities (Zagaris, 2010).

These new fraud opportunities can often be extremely difficult to detect due to their

technological sophistication. In this environment, the financial services industry,

particularly banks, face significant challenges and spend considerable resources to

identify and combat fraud (Kranacher, Riley & Wells, 2011). The challenges facing oil &

gas companies operating in Africa continue to be diverse and numerous fuelled by fraud,

corruption, theft, poor infrastructure and a lack of skilled resources, among others (PwC

2014).

The ERC launched a retailer self-test kit for fuel products in 2015, for testing fuel upon

delivery, before acceptance into storage tanks the commission said the kits would help

eliminate illegal practices such as the diversion of petroleum products meant for export

into the domestic market. The kit uses technology known as the lateral flow device that is

easy to use and greatly reduces the time and cost of monitoring and testing petroleum

products. The commission, through Energy Act of 2006, was awarded the legal mandate

of managing the petroleum marking and monitoring program (Wangari 2016).

2.2.2 Abnormal Fuel Losses

Evaporation loss of gasoline in storage occurs because of evaporative nature of the liquid

during its storage and as a result of changes in the liquid level. The evaporation loss

sources vary with tank design and metrological conditions such as temperature, wind

speed and solar radiation. The main types of evaporation loss in fixed roof tanks are

standing (also known as breathing) and working losses. Standing storage loss from tanks

is evaporative loss of stock vapor resulting from thermal expansion and contraction of air-

vapor mixture resulting from the daily temperature cycle. Working loss from a tank is the

vapor loss that is expelled from the tank resulting from a change in liquid level in the tank

and the combined effect of both filling loss and emptying loss which amounted to the

total evaporation loss is 0.5%. This is significantly higher than that set by the ministry of

energy 0.25% (Abdelmajeed, Onsa and Rabah 2008).

10

The petrol service stations are some of the businesses at great risk of robbery in terms of

customer theft by fueling and driving off without paying. Cash too would be subject to

robbery, burglary, and employee theft. Therefore gasoline is subject to theft by customers

and employees and in addition the stations would be vulnerable to credit card and

counterfeit currency fraud (Loss prevention Handbook Gasoline Service Station

2015).Environmental and costly safety reporting requirements have also increased

operation cost. These are some of operational risks the manager will have to look into

before they contribute to abnormal losses (Ernst& Young 2013).

2.2.3 Fuel Losses after Delivery

Stations should not allow smoking, flames, or other sources of ignition near the fuel

storage and handling areas. Gas vapours are heavier than air and will drift downward

from the source. It is the vapour, not the liquid, which burns. All stations should follow

safety recommendations of their fuel supplier during fuel delivery. Report fuel spills in

accordance with regulations and use absorbent materials to clean up and prevent the spill

from spreading and position the fuel delivery truck so that it does not interfere with the

movement of other vehicles while making sure that fuels are delivered into the correct

tank. Check the levels in the tank to determine quantity needed before receiving

commercial delivery, thereafter check the area around the vents of the receiving tanks for

possible ignition sources. Observe the vents during delivery for proper operation and stop

delivery if fuel is being ejected and have the driver stay near the truck flow valve while

the fuel is flowing into the storage tank in case of the need for emergency shut-off. Mark

gauge and fill caps clearly to indicate the fuel type and open caps only during filling and

gauging to minimize the release of fuel vapours (Canadian centre for health and

occupation safety 2009).

The number of road tanker compartments unloaded simultaneously into tanks should not

be above the number that can be safely managed at any one time or the maximum number

allowable to achieve correct vapor balancing. Even if one have taken reasonable steps to

prevent an incident, a spillage can still occur, for example, if a delivery hose connection

catastrophically fails. The station must have procedures to follow and equipments

available for use if something goes wrong. The procedures should be in writing and

available at all times to staff on site, including the delivery driver. Tanker standing areas

should have design features to deal with spillages, such as diversionary curbs, slope to a

11

safe area, drainage grids/channels and interceptor or constructed wetland systems (Health

and Safety Authority, Dublin 2013).

2.2.4 Fuel Losses after Sales

At some petroleum service stations cathodic protection, may have been installed on

underground storage tanks (UST) and piping,(for example steel construction) to help

protect against corrosion and maintain system integrity. According to AS1940, any buried

tank must be provided with corrosion protection. This can be in the form of noncorrosive

materials such as fibre glass or fibre glass coatings. For steel tanks, corrosion protection

can be provided with protective coatings and wrappings or cathodic protection (CP)

according to AS 2832.1 or AS 28322 for pipe work and buried structures respectively. In

some sites with bad corrosion history both coatings and cathodic protection are used in

conjunction to protect steel tanks and pipes(Workplace Health and Safety Queensland

2011).

There are two types of cathodic protection systems for UST facilities which are sacrificial

(galvanic) and anodes impressed current systems. Both types do exactly the same thing

deliver current to the steel tanks and piping that are in contact with the soil and/or water.

In both cases it is necessary to conduct periodic inspections of the cathodic protection

systems. Current must be provided continually to the tank system. Should the CP system

be interrupted, the tanks will continue to corrode (ibid).

It is inevitable that at some stage, a fuel leak or spillage will take place on a petroleum

filling station, the risk increases as the installation for pipe-works, pumps and

underground tanks ages or the throughput of the site rises. The wear and tear on

equipment such as delivery hoses, nozzles and valves will in time fail. It is essential that a

sound routine maintenance program is in place to preserve the lifespan of the various

components of the installation starting with simple checks through to specialist engineers

attending the site to conduct maintenance work (A guide to petroleum filling station

ARMAGH 2012).

2.2.5 Petrol Leaks and Spills

Petrol is more likely to leak from tanks and pipe-work if equipment is poorly installed,

inadequately maintained, or old. Where the integrity of the storage system cannot be

ensured, for example by the provision of secondary containment, it can be augmented in a

12

number of ways such as: wet-stock measurement and reconciliation (manual or

automatic) or by fitting a leak detection system. Additionally, periodic testing for the

presence of water in underground tanks may indicate (through water ingress) a failure in

the tank shell, gaskets sealing the tank lid or pipe-work connections. The method(s) you

use will depend on the level of risk at the petrol station. Spillages should be cleared up

quickly. You can deal with small leaks and spills by applying dry sand or other absorbent

materials. Remember that materials used in this way will be contaminated with petrol so

make sure they are disposed of safely, if necessary by a hazardous waste disposal

specialist. If you intend to store contaminated material prior to disposal, use a safe place

like a closed bin or other container, which has been suitably labeled. Treat any other

materials contaminated with petrol, such as clothing, rags or soil, in a similar way (Health

and Safety Authority, Dublin (2013).

Pollution prevention, national health, safety and environmental goals coincide with the

Oil Industry’s economic interests. Businesses have strong incentives to reduce the

toxicity and sheer volume of the waste they generate. A company with an effective,

ongoing pollution prevention plan may well be the lowest-cost operator and have a

significant competitive edge. Companies decrease their risk of civil and criminal liability

by reducing the volume and the potential toxicity of the vapor, liquid, and solid

discharges they generate. Companies should look at all types of waste, not just those that

are currently defined as hazardous. Since toxicity definitions and regulations change,

reducing the volume of wastes in all categories is a sound long-term management policy

(ERC 2012).

It is important to regularly monitor underground storage tank UST, containing petroleum

products, especially if the tank is more than 20 years old. New USTs should have a

method of detecting leaks. Select the tank location carefully to ensure ease of installation

and reliability of chosen leak-detection methods. Test the tank periodically for leaks and

measure the tank inventory on frequent basis to help detect leaks before major problems

develop (ERC 2012).

According to Munyavi, (2015), In Kenya, currently, a lot of emphasis is placed on the

safety of petrol stations, both during construction and during their operation. The

emphasis places the onus on the owners, employers or responsible entities to identify and

13

assess the risks associated with the construction, delivery, dispensing and storage of

petroleum products at these stations (The MITRE Institute, 2007).

Tank tests should be supported by documented procedures and you should ensure that the

test is carried out by people who are competent in the operation of the particular test used.

Depending on ground water levels it is possible for tests to give false assurances, i.e. a

tank may leak but pass the test. Note: It should, however, be borne in mind that periodic

leak testing is not an alternative to having a recognized and appropriate method of leak

detection in operation. Tanks and their associated equipment, including leak detection

and overfill prevention systems, fill pipes including the drop tube, access chambers and

their covers, are key areas where maintenance is vital. This will help to ensure the

effectiveness of the tanks and safety and emergency devices. Work on petrol tanks is

inherently dangerous and precautions should take account of the flammable contents,

particularly when the tank or compartment is nominally empty. Maintenance,

modifications and repairs should be carried out only by people who are competent to

carry out this type of work (Yerevan, Armenia USAID 2008).

2.2.6 Continuous Inventory Monitoring

Whilst it is good business to control wet-stock, continuous (daily) inventory monitoring is

also the most basic and simple form of leak detection. Consistent and accurate monitoring

of the amount of petrol unloaded, stored and dispensed can allow leaks from tanks and

pipe-work systems to be identified. Manual inventory checking is usually only suitable as

the sole method of leak detection at sites, which have a low throughput of petrol where

information about gains and losses is likely to be more reliable. The simplest way to

manually carry out inventory checking is to use dipsticks. Automatic stock reconciliation

systems can provide an instant display of any discrepancy and might be a more reliable

control method at sites having more than a very low throughput. Whatever method is

selected, the record should show all gains and losses for each tank or compartment and

connected pipeline system. This will allow one to detect unusual trends of stock variation,

which could indicate a leak. The effectiveness of inventory monitoring as a method for

detecting leaks depends on a number of factors: the reliability of the measurement i.e. the

accuracy of the contents gauge or dip; accurate recording of sales and deliveries; and a

competent assessment of trends indicated by the results. Assessment means comparing

results over a period of time, taking into account the possible effects of significant

14

temperature variations on volumetric measurement, the loss of petrol through vapor

release, for example during tank or compartment filling, and examining the results of

checks for the presence of water (Health and Safety Authority, Dublin 2013).

2.2.7 Stock Reconciliation

Stock reconciliation should be carried out by someone who is competent to analyze the

figures and produce results and trends (this could be the site operator or someone

contracted to assess the information or the use of specialist computer software). Small

daily discrepancies, which, over a period tend to vary around a norm, are likely to arise

from factors other than leakage. Significant leaks are soon apparent; it should be possible

to identify smaller leaks from trends established over a period of days rather than months.

A second source of vapor emissions from service stations is underground tank breathing.

Breathing losses occur daily and are attributable to gasoline evaporation and barometric

pressure changes. The frequency with which gasoline is withdrawn from the tank,

allowing fresh air to enter to enhance evaporation, also has a major effect on the quantity

of these emissions. An average breathing emission rate is 120 mg/L of throughput.

Statistical Inventory Reconciliation (SIR) systems establish acceptable stock

reconciliation profiles by statistical analysis of the daily losses and gains for each tank.

As well as considering daily stock variances, SIR systems also consider the cumulative

variances as a percentage of the cumulative sales in order to identify trends and

anomalies. They can be operated by independent third parties or by in house personnel

(Health and Safety Authority, Dublin 2013).

Many petrol filling station operators rely on a manual petrol stock reconciliation system

to detect leaks from the storage tanks and pipe-work. The basic idea is that by finding

how much petrol has come out of a tank through the dispensers (by checking the totaliser

readings, for example) and taking into account how much has been put into the tank, you

can calculate how much should be left in the tank. If you then measure how much petrol

actually is in the tank you know if there has been a loss or gain that could indicate a leak.

This method of leak detection relies on consistent measurements of the tank contents, the

accuracy of the measurements, and knowledge of the pattern of apparent losses and gains

for your site. A lot of sites still use dipsticks or pump-up (hydrostatic) gauges to measure

the contents of tanks. Pump-up gauges and dipsticks can only be read to certain accuracy,

not usually better than 50 to 100 litres either way. The readings are still useful because

15

over a period of time they can be analyzed and in some cases very small leaks can be

detected by using special methods. Even without specialist analysis the readings can be

sufficient to detect leaks before a lot of petrol has been lost. Stock losses are to be

expected due to evaporation, shrinkage and the displacement of vapor during the road

tanker unloading process. Typically, an average stock loss of some 0.2% to 0.3% can be

expected. However, at some sites average stock losses can be as high as 0.5% or 0.6%.

Although most sites tend to experience stock losses, occasional stock gains can occur.

NOTES: For the purposes of detecting a leak, it is essential that the quantities of petrol

delivered, stored and dispensed are accurately monitored and recorded on a daily basis

(Health and Safety Authority, Dublin 2013).

2.3 Challenges against Management of Operational Risks for Petroleum Filling

Station

2.3.1 Operational Failure

When the banking industry was confronted with this “boundary issue” many years ago,

the Basel Committee ruled that credit losses driven by operational failure were to be

treated as credit losses for capital adequacy purposes. This compromise ruling, which was

based on historical precedence and expedience, had the unintended effect of diminishing

the importance of operational risk — not just in banking but across all industries that

followed suit. Under this narrow definition, operational risk was associated with a low

capital charge; therefore, many banks viewed it as a low-priority issue. Not only did this

divert resources and management attention away from this key risk, but it also obscured

the underlying causes of many of the largest losses (Khan 2008).

Whatever type of petrol station one operate, one need procedures to deal with

emergencies and ensure that their employees are trained to deal with them. An example

procedure would be: stop fuelling operations and return nozzles to their housings; isolate

the electrical supply from faulty equipment; clear up spills promptly; contact the

emergency services where necessary; and do not resume dispensing until faults affecting

safety have been corrected or other incidents properly dealt with (Health and Safety

Executive 2014).

16

According to Yerevan (2008), spillages of petrol when dispensing activities are taking

place are foreseeable events and control measures and equipment should be in place to

deal with such occurrences. Experience has shown that spillages can be put into the

following three general categories in the order of frequency: Blow-backs from the fuel

tank or container when the liquid level is reaching full capacity. Due to the safety features

designed into the dispenser nozzle, this type of spillage will normally only involve a

small quantity of petrol; most of which will quickly evaporate on the forecourt surface; a

leak from a defective fuel tank of the vehicle being refueled. This type of spillage can

arise from the sudden and catastrophic failure of the fuel tank resulting in the full contents

being discharged onto the forecourt. The quantity can be in the region of 50 litres if the

failure occurs when the tank is full; and the failure of a hose coupling or a leak from a

hose that has been cut or stabbed by vandals. This is, potentially, the most serious type of

leak as it can result in the customer being splashed with petrol. In a worst-case scenario,

there is the possibility of a customer being 'showered' with petrol if, for example, there is

a coupling or hose failure on a 'high hose' dispenser (Yerevan, 2008).

Spillage loss is made up of contributions from prefill and postfill nozzle drip and from

spit-back and overflow from the vehicle’s fuel tank filler pipe during filling. The amount

of spillage loss can depend on several variables, including service station business

characteristics, tank configuration, and operator techniques. Staff should be trained in

how to deal with such a situation and there should be facilities available for a customer to

wash the affected parts of their body and remove contaminated clothing (Health and

Safety Authority, Dublin 2013).Methods to reduce the amount of waste generated in the first

place, together with the re-use and recycling of wastes, must be considered. There is scope for

significant savings, as the costs of products and waste disposal continue to raise (ERC 2012).

2.3.2 Understanding the Uniqueness of Operation Risk Management

CROs and other senior leaders in risk typically have a background in either credit risk or

market risk. A recent scan of 25 large Global North America and European Banks and

asset Managers revealed that only one leader had held a formal operational risk position

prior to being appointed to the position of CRO, while more than a half had prior market

or credit risk experience. This is likely to have two implications towards ERM. First

CROs may make ORM less of a priority than other type of risk that they are comfortable

with. Two CROs may be inclined to use the same framework has they have previously

17

deployed to manage market and credit risk. While ORM, cannot be efficiently managed

through the use of market and credit risk framework. While credit and market risk are

directly linked to the balance sheet and are easily quantifiable, operation risk arises from

multiple sources and is open-ended in nature; it therefore should be managed closely to

the specific processes where the risk arise (Mckinsey working paper on risk 2012).

2.3.3 Financial

Operational risks affect client satisfaction, reputation and shareholder value, all while

increasing business volatility. Contrary to other risks such as credit risk, market risk and

insurance risk operational risks are usually not willingly incurred nor are they revenue

driven. Moreover, they are not diversifiable and cannot be laid off, meaning that, as long

as people, systems and processes remain imperfect, operational risk cannot be fully

eliminated (According to KPMG Luxemburg 2012). Clients, Products and Business

practices events continue to make up the majority of top five losses each month. It seems

we have not learned from history, Baring case (1994) where the trader Nick Leeson led to

a loss of USD 1.4billion at his employer Baring Plc Bank that declared bankruptcy, taking

a position in derivatives. SocGen case, where the trader JoromeKerviel led to a loss of

EUR 4.9billion at his employer SocGen, taking a massive, unidirectional position in

European equity index futures in 2007 and 2008 and unsustainable investment (2012),

where JP Morgan, USB, Depfa Bank and Deutsche Bank paid approximately USD

602Million to municipalities of Millan, Italy, for selling complex derivatives

inappropriate for inexperienced investors

2.3.4 Underground Tanks

Underground tanks should be selected, sited and installed so that the risk of leakage is

reduced to the lowest level that is reasonably practicable. Tanks should be suitable for

the prevailing ground conditions and suitably protected from corrosion and premature

degradation by chemical attack. Leaks from underground tanks cannot usually be

observed directly and are, therefore, more difficult to detect than leaks from tanks

installed above ground. There was a case a petrol station in an urban area, whose 50 year

old tanks were found to have leaked petrol into the basement of nearby flats. Fortunately,

the petrol was discovered before the vapor had built up to a dangerous level. Sources of

ignition were removed and the flats evacuated. An evaluation of the risks of the tanks

18

leaking should have been made which, together with a suitable inventory or leak detection

system, could have found the leak before it became a risk to the public. The results of a

risk assessment will enable you to decide the level of control needed to identify and deal

with petrol leaks. A number of leak prevention and leak detection methods exist (Health

and Safety Authority, Dublin 2013).

To be effective, the method you select needs to either prevent a release of petrol or

provide early warning of a leak to enable remedial actions to be taken quickly so that

people are not put at risk. You will also have to consider risks to the environment from a

petrol leak. If your site is located in an area where a leak of petrol would be a serious risk

to public safety or a serious contamination risk to groundwater, you will need to install

leak prevention controls instead of leak detection as the latter will only give warning after

petrol has escaped from the containment system (ibid).

When a leak is suspected, for whatever reason, it should be thoroughly investigated. This

may involve taking a tank out of service and inspecting it or carrying out a precision tank

test. A variety of testing methods exist; volumetric, vacuum and low pressure. The

investigation should take into consideration reasons other than leaks, which may cause

wet stock discrepancies before tank testing is carried out. A recommended investigation

sequence is: Check the reconciliation figures to ensure the arithmetic is correct and that

all deliveries and other stock movements have been accounted for; Check the wet stock

control procedures are carried out correctly and whether forecourt staffs require

additional training; Check for any obvious leaks from pipe joints in manhole chambers,

electrical ducts, drainage systems and around the dispenser base; Check for any increases

in petrol smells. Take into account any reports or complaints from neighbors; Have the

dispensers checked for accuracy; Check the tank contents measuring system. Check the

dip stick for damage or the gauging system for correct operation. Check whether tank

gauges need to be recalibrated or serviced; Check the tanks for water ingress; Have the

pipe-work tested for leak; and consider fraudulent activities or short deliveries. The most

appropriate test method will depend on the type of installation at your site. Before

selecting a particular test find out whether: the test has third party accreditation, if so for

what fill levels, tank sizes and ullage volumes; the test takes account of the water table;

the ullage space is tested; there are any safety features; and the operators have been

properly trained (Health and Safety Authority, Dublin 2013).

19

2.3.5 Emergency Plans

The purpose of the emergency plan is to minimize the effects of any emergency that

occurs at premises where larger quantities of dangerous goods are stored and handled.

The emergency plan should be capable of dealing with the worst-case credible scenario.

However, detailed planning should concentrate on the more likely events. The emergency

plan should also be sufficiently flexible to ensure that an emergency response can be

varied according to the severity and type of dangerous occurrence or near miss. (The

MITRE Institute, 2007).

The contents of emergency plans must be communicated to all people who may be

exposed to a risk as a result of an emergency, including: employees; contractors and

sub-contractors; and people in control of adjacent premises. The emergency plan should

be tested when first devised, after each modification and at regular intervals. Simulated

emergencies and other exercises should systematically attempt to involve all people likely

to be involved in a dangerous occurrence or near miss. These exercises should include

practical drills. Emergency plans must be updated whenever: there is a change of

circumstances on or off the premises; updated information becomes available; a

deficiency in the plan is identified (Health and Safety Executive 2014).

The majority of petrol service stations are small with some facilities operating 24 hours.

They are often located in or near urban settings or along major transport routes. This trend

has changed in Kenya as petrol stations are constructed in rural areas too. The main

products used by the retail petroleum industry are gasoline and diesel, although other

fuels such as liquefied petroleum gas (LPG) may also be provided (ERC 2012).

2.4 Best Practices of Managing Operational Risk for Petroleum Filling Station

2.4.1 Operational Risk Management

To manage this risk effectively, institutions should apply a top-down risk based view,

assigning clear responsibility for all key operational risks. Effective governance also

requires that sufficient talent is in place, covering all key operational risk and without

impeding business execution (Mckinsey work paper on risk 2012).

20

Health and Safety Authority, Dublin (2013), argues that to successfully control the risks

associated with the storage and handling of dangerous goods. The filling station owners

must involve their employees and any other people who are engaged to carry out work at

the station when planning and implementing risk control measures that are likely to be

affected by the dangerous goods.

2.4.2 The Primary Duty to Eliminate or Control Risk

The station owners or operator has a duty to ensure that any risk associated with the

storage and handling of dangerous goods at the station is controlled, that is if elimination

is not practicable, the risk must be reduced so far as is practicable. The Regulations also

place some specific duties on owner or operator to control risks associated with particular

aspects of storage and handling of dangerous goods. Giving effect to these specific duties

does not displace their general obligation to control risk (Health and Safety Authority,

Dublin 2013).

To identify hazards one need to understand their site operations, its surroundings, and the

age, make and type of equipment installed. Employees or safety representatives may be

able to help fill in any gaps in this knowledge. A site plan may also prove useful when

carrying out the risk assessment. Looking for areas where petrol vapor may accumulate is

a way of determining where vapors may occur and is a legal requirement (Yerevan,

Armenia USAID 2008).

For each activity, decide whether and how petrol could escape. Think about how much

could spill or leak, what route it might take and where it would collect. Look for possible

sources of ignition. Take account of human error and the fact that people do not always

follow instructions or behave in a responsible way. For example, customers may park

badly and obstruct delivery tankers or emergency escape routes. They may also attempt to

fill unsuitable containers with petrol, or smoke when filling their cars. Consider all

activities including cleaning, maintenance and those other activities, which only take

place infrequently. Think about the greatest number of people who could be affected by a

fire or explosion. Include those who work at the petrol station; come to the site to buy

petrol; visit the site for other reasons, such as contractors or customers using a forecourt

shop or car wash; those who 1963.occupy adjacent property; and share and/or operate

another business on your site. In each case, think about what could happen or what could

21

go wrong and include the most and least likely events to occur. Include the worst events

that could happen and those where you may have no visible sign or warning. Make a

written note of your findings and the measures you already have in place to deal with the

hazard. This will help you later in the assessment (Yerevan, Armenia USAID 2008).

2.4.3 Safety Measures

If you have done all that the law requires to ensuring people’s safety. Look at the

precautions you already have in place. Although the probability of a particular

occurrence may be small, one will need to consider the consequences, if something does

go wrong. If the risks are already low enough you should not have to introduce any

further measures. But if you conclude that you should do more, you must explore other

options for controlling or minimizing the risk. No two sites are the same, so it is not

possible to provide a straightforward list of what you should do. Seek advice if necessary,

and remember that you are responsible for seeing that the risk assessment is adequately

done. Some changes, such as relocating vent pipes, may take time to achieve and require

interim steps to be taken to minimize the risk. When you have decided what to do and

taken the appropriate action, you need to check that the measures work. How we do this

will vary according to the nature of the changes one has made (ibid).

Record of the significant findings of the risk assessment must be kept. The type of

information recorded should include the significant hazards, i.e. those which pose a

serious risk to workers or the public whose safety might be affected if something goes

wrong; the people who may be affected; and existing control measures and the extent to

which they control the risk – this need not replicate details more fully described in

documents such as manufacturer’s instructions, health and safety policy statement or

procedures, company rules etc but you should refer to them if you intend to rely on them

(Yerevan, Armenia USAID 2008).

2.4.4 Petrol Leaks and Spills Prevention

Petrol is more likely to leak from tanks and pipe-work if equipment is poorly installed,

inadequately maintained, or old. Where the integrity of the storage system cannot be

ensured, for example by the provision of secondary containment, it can be augmented in a

number of ways such as: wet-stock measurement and reconciliation (manual or

automatic) or by fitting a leak detection system. Additionally, periodic testing for the

22

presence of water in underground tanks may indicate (through water ingress) a failure in

the tank shell, gaskets sealing the tank lid or pipe-work connections. The method(s) a

station uses will depend on the level of risk at the petrol station. Spillages should be

cleared up quickly. The station can deal with small leaks and spills by applying dry sand

or other absorbent materials. However materials used in this way will be contaminated

with petrol so one should make sure they are disposed of safely, if necessary by a

hazardous waste disposal specialist. If the stations intend to store contaminated material

prior to disposal, they should use a safe place like a closed bin or other container, which

has been suitably labeled. Other materials contaminated with petrol, such as clothing, rags

or soil, should be treated in a similar way (Health and Safety Authority, Dublin 2013).

According to Energy Regulation Commission ERC (2012), pollution prevention, national

health, safety and environmental goals coincide with the Oil Industry’s economic

interests. Businesses have strong incentives to reduce the toxicity and sheer volume of

the waste they generate. A company with an effective, ongoing pollution prevention plan

may well be the lowest-cost operator and have a significant competitive edge. Companies

decrease their risk of civil and criminal liability by reducing the volume and the potential

toxicity of the vapor, liquid, and solid discharges they generate. Companies should look

at all types of waste, not just those that are currently defined as hazardous. Since toxicity

definitions and regulations change, reducing the volume of wastes in all categories is a

sound long-term management policy (ERC 2012).

2.4.5 Offloading of Fuel

The number of road tanker compartments unloaded simultaneously into tanks should not

be more than: the number that can be safely managed at any one time; or the maximum

number allowable to achieve correct vapor balancing. Even if the station have taken

reasonable steps to prevent an incident, a spillage can still occur, for example, if a

delivery hose connection catastrophically fails. You must have procedures to follow and

equipment available if something goes wrong. The procedures should be in writing and

available at all times to staff on site, including the delivery driver. Tanker standing areas

should have design features to deal with spillages, such as diversionary curbs, slope to a

safe area, drainage grids/channels and interceptor or constructed wetland systems (Health

and Safety Authority, Dublin 2013).

23

It is important to regularly monitor underground storage tank UST, containing petroleum

products, especially if the tank is more than 20 years old. New USTs should have a

method of detecting leaks. Select the tank location carefully to ensure ease of installation

and reliability of chosen leak-detection methods. Test the tank periodically for leaks and

measure the tank inventory on frequent basis to help detect leaks before major problems

develop (ERC 2012).

According to Munyavi, (2015), In Kenya, currently, a lot of emphasis is placed on the

safety of petrol stations, both during construction and during their operation. The

emphasis places the onus on the owners, employers or responsible entities to identify and

assess the risks associated with the construction, delivery, dispensing and storage of

petroleum products at these stations (The MITRE Institute, 2007).

Tank tests should be supported by documented procedures and you should ensure that the

test is carried out by people who are competent in the operation of the particular test used.

Depending on ground water levels it is possible for tests to give false assurances, i.e. a

tank may leak but pass the test. Note: It should, however, be borne in mind that periodic

leak testing is not an alternative to having a recognized and appropriate method of leak

detection in operation. Tanks and their associated equipment, including leak detection

and overfill prevention systems, fill pipes including the drop tube, access chambers and

their covers, are key areas where maintenance is vital. This will help to ensure the

effectiveness of the tanks and safety and emergency devices. Work on petrol tanks is

inherently dangerous and precautions should take account of the flammable contents,

particularly when the tank or compartment is nominally empty. Maintenance,

modifications and repairs should be carried out only by people who are competent to

carry out this type of work (Yerevan, Armenia USAID 2008).

2.4.6 Methods of Operation

The dispensing arrangements can operate in a variety of ways; from attended service,

where site staffs refuel customer’s vehicles through to sites that are unmanned and where

customers refuel their own vehicles without any on-site supervision or assistance from the

site operator. Some filling stations now function on an alternating system where the site is

operated as attended self-service at busy periods and unattended self -service at quiet

periods (i.e. late evening and through the night). The decision as to the mode of forecourt

operation is one for the site operator to take on a commercial basis but after taking safety

24

concerns into account. The safety considerations must be based on a site-specific risk

assessment. Irrespective of the mode of operation, forecourt attendants should not be

under the age of 16 years and no one under the age of 18 years should be left in sole

charge of a filling station (Health and Safety Executive 2014).

All dispensers have certain safety features to prevent releases of petrol. Modern

dispensers are designed and certified to a higher standard than older ones with features

such as cut-off or limiting devices and breakaway couplings. In order to comply with the

requirements of this regulation, site operators will need to ensure that petrol is dispensed

safely (Health and Safety Executive 2014).

2.4.7 Mobile Telephones

Generally mobile telephones are not designed and certified for use in explosive

atmospheres. Their use can also create a serious distraction for people carrying out

dispensing activities. Radio transmissions from individual mobile telephones are

generally too low to induce dangerous electric currents in nearby equipment and the risk

of incendives parking from the battery is low, however, they should not be used in the

hazardous areas that exist when actually dispensing petrol. Neither should they be used in

the hazardous areas around the fill and vent pipes during petrol deliveries. Mobile

telephones should also not be used by customers or forecourt staff whilst actually

dispensing petrol into fuel tanks or containers (Health and Safety Executive 2014).

The use of radio equipment fitted on emergency vehicles and citizen band (CB) radios

may create an ignition risk. These types of transmitting equipment do have a power out-

put sufficient to induce dangerous electrical currents in nearby fixtures and they should

not be allowed to be used at the dispensing points or in the vicinity of the road tanker

when unloading. It should be noted that the radio equipment mounted on most emergency

vehicles is under automatic interrogation from the base station. This means that radio

messages are being received and transmitted without anyone speaking into a hand set

(Yerevan, Armenia USAID 2008).

2.4.8 Training of Forecourt Attendants

As business environments change and grow increasingly complex, it is particularly

important that leaders develop a set of skills that will help the employees to prevent and

25

effectively respond to crises and other strategic issues (Garcia, 2006; Mitroff,

2005).Employee competencies are particularly relevant in managing the operational,

strategic, and human resource functions and outcomes when crises occur (Denis et al.,

2001; Wang & Belardo, 2005). Thus, organizational leaders must take direct

responsibility for orchestrating a work environment that infuses a competency-based

approach to crisis management (Bass, 1985; Wooten & James, 2004). This involves the

identification of the critical tasks and activities needed during a crisis situation; the

competencies (knowledge, skills, or abilities) required to successfully complete these

activities, and an understanding of the context for executing the crisis management

strategy (Yusko& Goldstein, 1997). In doing so, organizational culture is created where

members are encouraged and rewarded for thinking systematically (Lochomoi,

Poti&Obaja 2012).

It is a requirement to provide adequate training and relevant information for all

employees involved in the storage and handling of any dangerous substances. It will,

therefore, be necessary to identify the training and retraining needs of forecourt staff by

an assessment of the risks relating to fire and explosion. Training in matters relating to

the dispensing operation should include: Procedures for activating and controlling

dispensers; Safe dispensing procedures; Use of customer information systems, e.g.

public address systems; Safe filling of petrol containers; Dealing with customers'

enquiries on safety matters; Spillage control and emergency procedures during

dispensing including the practical use of the types of fire extinguishers provided;

Recognizing the circumstances when it is not safe to authorize a dispenser and when pre-

authorization should be over-ridden; and Understanding customer behavior and

unacceptable customer practices. It is the responsibility of site management to instruct

forecourt attendants not to authorize (or to over-ride the pre-authorization of) a pump

when a situation of poor visibility arises (Yerevan, Armenia USAID 2008).

Owners of a petrol station, have duties to identify hazards and assess and control risks

arising from the storage and handling of dangerous goods. They also have duties to

consult with employees and health and safety representatives, and provide employees and

other affected people on the premises with induction, information, training and

supervision. It is their responsibility to ensure that people carrying out duties under the

Regulations on their behalf have the appropriate competencies to enable them to perform

26

tasks correctly. The competencies may be acquired through training, education or

experience or through a combination of both. Risk management principles and practice

(2008).

2.5 Chapter Summary

This chapter goes into an in depth of the research subject reviewing some literature with

more or less the same goal. The work of different authors is highlighted in order to

understand the problem exhaustively. The chapter has given readers an in-depth

analysis of issues raised and has been guided by the set objectives of the study. The next

chapter will look at the research methodology that will be adopted for the study.

27

CHAPTER THREE

3.0 RESEARCH METHODOLOGY

3.1 Introduction

The main purpose of this study was to investigate the operational risk management in

petroleum filling station. This Chapter describes and justifies the tool that were used in

the process of conducting the study including the research design; the population; the

sample size and research procedures, data collection and data analysis methods.

3.2 Research Design

Cooper and Schindler (2014), defines research design as a plan and structure of

investigation so conceived as to obtain answers to the research questions. Chandan, Singh

and Khanna (2010) noted that research design is the arrangement of collecting and

analyzing data in a way that targets to a chain of significance to the research purpose with

economy in the procedure. Research methodology is defined by Leedy & Ormrod (2001)

as the general approach the researcher takes in carrying out the research project. While

Creswell (2003), states that quantitative research involves the collection of data so that

information can be quantified and subjected to statistical treatment in order to support or

refute alternate knowledge claims.

This study used cross-sectional descriptive research design which involved gathering

data that describes events and then organizes, tabulates, depicts and describes the data

collection (Glass and Hopkins, 1984). A descriptive survey was used to describe

characteristic of variables; analyze their frequency, distribution, features and observable

phenomena of the population. This design is the most recommended for business and

social studies (Leedey, 1997).

The basis of selection this design for the study is its ability to provide numeric and

practical description of the activities carried out by petroleum filling stations, their unique

challenges and possible risk management measures that could be employed to address

these problems. A comprehensive view of typical responses to the research questions in

this study was the key to understanding how operational risk management was carried out

28

in these outlets and how innovative the stations are in minimizing risk in an industry full

of volatility, uncertainty, complexity and ambiguity (VUCA).

3.3 Population and Sampling Design

3.3.1 Population

According to Xie, (2013), population is categories of entities satisfying certain definitions

but varying in their individual properties, hence in population science, the scientist no

longer assumes that all concrete units in a population are essentially the same or

homogenous. And Mukras (2007) defines population as the total statistical collection of

elements about which to make inferences or that forms a given set. In this research

therefore, the population was the entire groups of petroleum filling station that meet the

criteria for inclusion in the study and had common observable characteristics in terms of

typical business activities, operations, licensing and regulating entity.

The targeted population for this study was Petroleum Filling Stations in Nairobi County.

According to Mutua and fedha (2012) we have 1052 filling station in Kenya, 418 of

which are independent and 634 are branded. Twenty eight percent (291) are located in

Nairobi. 74 of which are independent and 217 are branded. The study focused on the 59

of the independent filling station and 41 of the branded station making a sample size of

100 which form 34% of the population studied. .

3.3.2 Sampling Design

Sampling is based on two premises; that there is enough similarity among the elements in

a population that a few of these elements will adequately represent the characteristics of

the total population and that although some elements within a sample underestimate a

population value, others overestimate the value. The result of which is that a sample

statistic such as the arithmetic mean is generally a good estimate of a population mean

(Cooper & Sunder 2014).

3.3.2.1 Sampling Frame

Sampling frame is the complete list of all cases in population from which the sample is

actually drawn (Sunders, 2003). The sample frame consists of all the employees

working in the 100 filling stations and owners of the filling stations both of which

handle operations on regular basis and posses’ data relevant to the study.

29

3.3.2.2 Sampling Technique

The study adopted a cross-sectional descriptive research technique. Sample sizes of 100

filling stations were selected and questionnaires distributed which were filled by 138

respondent. The basis of selecting this technique for the study was its ability to provide

numeric and practical description of the activities carried out by petroleum filling

stations, their unique challenges and possible risk management measures that could be

employed to address these problems for the purpose of getting a deeper view of the

operational risk management in petroleum filling stations.

3.3.2.3 Sample Size

An observation by Saunders, Philip and Thornhill (2003),shows that the larger the

sample size the lower the likelihood of error in generalizing the population hence

probability sampling is a compromise between the accuracy of the findings and the

amount of time and money the researcher invests in collecting, checking and analyzing

the data. In this study, a relatively large sample of 138 elements in the 100 Petroleum

filling stations was be used.

The sample size is derived from Yamane (1967) formula

n = N

1 + N (e) 2

Where n is the sample size;

N is the population size;

ande is the margin of error

n = 291

1 + 291 (0.1)2

n = 100

From the formula the sample size was 100.

30

3.4 Data Collection Procedure

Data collection is the gathering of data that may range from simple observation at one

location to an ostentatious survey of a multinational corporation at site in different parts

of the world says Cooper and Schindler (2011). In this study primary data collection

tools used were in general and more specifically a semi-structured questionnaire (that

did not limit responses but provided a frame of reference for participants answers which

were also called open ended questions) and interview schedules with the respondents

from the petroleum filling station being one of the data collection tool. The first part of

the questionnaire were classification questions which covered sociological –

demographic (and institutional profile of the petroleum filling stations) variables that

allowed participants answers to be grouped so that patterns could be revealed and

studied in depth (Cooper and Schindler, 2014).

The second part of the questionnaire comprised of target questions that were focused on

the typical operational risk phased by petroleum filling station. The third, part were

focused on the Challenges against Management of Operation Risk for Petroleum Filling

Station and lastly Best Practices for Managing Operation Risk in Petroleum Filling

Station. The researcher used both physical and electronic (email) distribution methods

of the questionnaires (by himself and his research assistants) and physically collected

the completed questionnaires to maintain the high level of confidentiality that was

promised.

3.5 Research Procedure

This will involve pilot testing of the questionnaire which according to MacDonagh,

Porter, Pontin, and Ewings, (2004), will allow the questionnaire to be reduced to a

manageable number of items for the item final questionnaire while maintaining face and

content validity. They further stated that appropriate piloting will further refine this

questionnaire by providing a manageable questionnaire ready for larger-scale validation.

Hence this preliminary application of the questionnaire will help to determine the

relevancy and adequacy in the responding to research questions in this study. Therefore

piloting will be done on 5% of the sample size. The distribution of final questionnaire

will be administered by research assistants working in the USIU research office. To

obtain more insights on the research questions, experience interviews will be used to a

certain extend to highlight issues raised through the questionnaire. However, these

31

interviews will focus mostly on the gatekeepers of information the population to be

sampled.

3.6 Data Analysis

The researcher applied both quantitative (to a greater extend) and qualitative (to a lesser

extend) data analysis techniques. While the qualitative technique applied both individual

depth interviews and participant observation, the quantitative method applied descriptive

statistics of phenomenon or characteristics associated with a subject population (who,

what, when, where, and how of atopic), (Cooper and Schindler, 2014). The collected data

was coded, entered into the system and analyzed using the latest version of SPSS

Statistics program. Upon tabulation of the data and interpretation of the underlying

discoveries the researcher evaluated the extent to which the research questions had been

addressed. Quang and Hong (2009), quantitative data are observations measured on a

numerical scale and presentation of the results and findings was in terms of tables and

graphs.

3.7 Chapter Summary

This chapter describes the methodology used in the research. It also set out the

population, sample size as well as data collection methods which ensured the

achievement of the set objectives. Data analysis and presentation techniques were also

explained. The next chapter presents the results and findings of the study.

32

CHAPTER FOUR

4.0 RESULTS AND FINDINGS

4.1 Introduction

This chapter presents the results and findings of the study of the research questions with

respect to the data information collected from the respondents. The chapter begins with

the analysis and reports on general information with respect to the respondents;

consequently second part looks on the reports of the typical operational risks for

petroleum filling station, the third part covers on the analysis of the challenges against

operational risk in the petroleum filling station, the fourth part covers on the analysis and

report of the good practices on operational risks management for petroleum station and

finally the last part provides the reports on the inferential statistics.

4.2 General Information

The general information about the respondents was collected based on the position held in

the organization, years of experience and the level of Education.

4.2.1 Position in the Organization

From the general information provided by the respondents on the position held within the

organization, it was found that 1 respondent who represents 0.7% of the validly

interviewed respondents was the owner of the organization, 12 respondents who represent

8.7% of the validly interviewed respondents were dealers of various branded

organizations, 35 respondents who represent 25.4% of the validly interviewed

respondents were managers within the organizations, 27 respondents who represent

19.6% of the validly interviewed respondents were supervisors within the organizations

whereas 63 respondents who were 45.7% of the validly interviewed respondents were

pump attendants within the organizations.

33

Thus the majority of the respondents were Pump attendants. Figure 4.1 below:

Figure 4.1: Position in the Organization

4.2.2 Duration in the Organization

From the general information provided by the respondents on the years of experience

within the organization, it was found that 101 respondents who represent 73.2% of the

validly interviewed respondents had 1-5 years of experience within their organizations, 23

respondents who represent 16.7% of the validly interviewed respondents had 6-10 years

of experience within their organizations, 5 respondents who represent 3.6% of the validly

interviewed respondents had 11-15 years of experience within their organizations, 3

respondents who represent 2.2% of the validly interviewed respondents had 16-20 years

of experience within their organizations whereas 2 respondents who were 1.4% of the

validly interviewed respondents had 21 and above years of experience within their

organizations. Thus the majority of the respondents had 1-5 years of experience. Figure

4.1 below:

Owner1%

Dealer9%

Manager25%

Supervisor19%

Pump Attendant46%

34

Figure 4.2: Duration in the Organization

4.2.3 Level of Education

From the general information provided on the level of education, it was found that 76

respondents who represent 66.1% of the validly interviewed respondents had high school

certificate as the highest level of education, 25 respondents who represented 21.7% of the

validly interviewed respondents had degree as their highest level education whereas 14

respondents who were 12.2% of the validly interviewed respondents had Post graduate

level of Education.

Thus the majority of the respondents had High School certificate as the highest level of

education as shown in the table 4.1 below:

Table 4.1: Level of Education

Frequency Percent

High School 76 66.1

Degree 25 21.7

Post-graduate 14 12.2

Total 115 100.0

0

20

40

60

80

100

120

1-5 Years 6-10 Years 11-15 Years 16-20 Years 21 and above

101

23

5 3 2

Freq

uen

cy

Duration in the Organization

Frequency

35

4.3 Typical Operational Risks for Petroleum Filling Station

4.3.1 Fraud Cases

Research was done to investigate the opinion that the petrol stations have had cases of

fraud within the last six months, it was found that 72.6% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 19.2% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 8.1% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that their petrol stations have had cases of fraud within the last six months as shown in the

table 4.2 below.

Table 4.2: Fraud Cases

Frequency Percent

Strongly Agree 8 5.9

Agree 18 13.3

Not sure 11 8.1

Disagree 53 39.3

Strongly Disagree 45 33.3

Total 135 100.0

4.3.2 Key Factor to Fuel Losses

Research was done to investigate the opinion that the petrol stations have identified fraud

as a key factor contributing to abnormal fuel losses, it was found that 68.7% of the validly

interviewed respondents disagreed and strongly disagreed with the opinion, 21.6% of the

validly interviewed respondents agreed and strongly agreed with the opinion while 9.7%

of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that their petrol stations have identified fraud as a key factor contributing to abnormal fuel

losses as shown in the table 4.3 below.

36

Table 4.3: Key Factor to Fuel Losses

Frequency Percent

Strongly Agree 7 5.2

Agree 22 16.4

Not sure 13 9.7

Disagree 52 38.8

Strongly Disagree 40 29.9

Total 134 100.0

4.3.3 Abnormal Losses on Super (PMS)

Research was done to investigate the opinion that the petrol stations experience abnormal

losses on Super (PMS) above 0.5%, it was found that 56% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 36.6% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 7.5% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that their petrol stations experience abnormal losses on Super (PMS) above 0.5% as

shown in the table 4.4 below.

Table 4.4: Abnormal Losses on Super (PMS)

Frequency Percent

Strongly Agree 12 9.0

Agree 37 27.6

Not sure 10 7.5

Disagree 51 38.1

Strongly Disagree 24 17.9

Total 134 100.0

4.3.4 Abnormal Losses on Diesel (AGO)

Research was done to investigate the opinion that the petrol stations experience abnormal

losses on Diesel (AGO) above 0.5%, it was found that 62.3% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 24.6% of the validly

37

interviewed respondents agreed and strongly agreed with the opinion while 9.4% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that their petrol stations experience abnormal losses on Diesel (AGO) above 0.5% as

shown in the figure 4.3 below.

Figure 4.3: Abnormal Losses on Diesel (AGO)

4.3.5 Abnormal Losses on Kerosene (IK)

Research was done to investigate the opinion that the petrol stations experience abnormal

losses on Kerosene (IK) above 0.5%, it was found that 73.2% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 11.6% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 15.2% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that their petrol stations experience abnormal losses on Kerosene (IK) above 0.5% as

shown in the table 4.5 below.

0

10

20

30

40

50

60

StronglyAgree

Agree Not sure Disagree StronglyDisagree

5

29

13

60

26

Freq

uen

cy

rating

Frequency

38

Table 4.5: Abnormal Losses on Kerosene (IK)

Frequency Percent Strongly Agree 2 1.8

Agree 11 9.8

Not sure 17 15.2

Disagree 45 40.2

Strongly

Disagree

37 33.0

Total 112 100.0

4.3.6 Recorded Shortages after Offloading

Research was done to investigate the opinion that the petrol stations always record

shortages after offloading fuel, it was found that 38.6% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 51.1% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 10.4% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that

their petrol stations always record shortages after offloading fuel as shown in the table 4.6

below.

Table 4.6: Recorded Shortages after Offloading

Frequency Percent

Strongly Agree 12 8.9

Agree 57 42.2

Not sure 14 10.4

Disagree 31 23.0

Strongly Disagree 21 15.6

Total 135 100.0

4.3.7 Shortages after Selling

Research was done to investigate the opinion that the petrol stations experience shortages

after selling all the supplied fuel, it was found that 42.2% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 45.2% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 12.6% of the

validly interviewed respondents were not sure about the opinion.

39

Thus the majority of the respondents agreed and strongly agreed with the opinion that

their petrol stations experience shortages after selling all the supplied fuel as shown in the

table 4.7 below.

Table 4.7: Shortages after Selling

Frequency Percent

Strongly Agree 8 5.9

Agree 53 39.3

Not sure 17 12.6

Disagree 42 31.1

Strongly Disagree 15 11.1

Total 135 100.0

4.3.8 Manual Stock Reconciliation

Research was done to investigate the opinion that the petrol stations relies on manual

stock reconciliation to detect leakages from storage tank and pipe-works, it was found

that 36.8% of the validly interviewed respondents disagreed and strongly disagreed with

the opinion, 58.6% of the validly interviewed respondents agreed and strongly agreed

with the opinion while 4.5% of the validly interviewed respondents were not sure about

the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that

their petrol stations relies on manual stock reconciliation to detect leakages from storage

tank and pipe-works as shown in the table 4.8 below.

Table 4.8: Manual Stock Reconciliation

Frequency Percent

Strongly Agree 26 19.5

Agree 52 39.1

Not sure 6 4.5

Disagree 26 19.5

Strongly Disagree 23 17.3

Total 133 100.0

40

4.3.9 The Dip Stick Accuracy

Research was done to investigate the opinion that in the petrol stations the dip stick

accuracy level is plus or minus 50-100 liters, it was found that 28.2% of the validly

interviewed respondents disagreed and strongly disagreed with the opinion, 51.4% of the

validly interviewed respondents agreed and strongly agreed with the opinion while 17.4%

of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that in

the petrol stations the dips stick accuracy level is plus or minus 50-100 liters as shown in

the figure 4.4 below.

Figure 4.4: The Dip Stick Accuracy

4.3.10 Inventory Monitoring

Research was done to investigate the opinion that the petrol stations take dip reading at

the time of shift change as a method of continues inventory monitoring, it was found that

3.8% of the validly interviewed respondents disagreed and strongly disagreed with the

opinion, 95.5% of the validly interviewed respondents agreed and strongly agreed with

the opinion while 0.8% of the validly interviewed respondents were not sure about the

opinion. Thus the majority of the respondents agreed and strongly agreed with the opinion

that the petrol stations take dip reading at the time of shift change as a method of

continues inventory monitoring as shown in the table 4.9 below.

0

10

20

30

40

50

60

Strongly Agree Agree Not sure Disagree StronglyDisagree

17

54

24 26

13Freq

uen

cy

Rating

41

Table 4.9: Inventory Monitoring

Frequency Percent

Strongly Agree 60 45.1

Agree 67 50.4

Not sure 1 0.8

Disagree 3 2.3

Strongly Disagree 2 1.5

Total 133 100.0

4.3.11 Fuel Escort

Research was done to investigate the opinion that fuel is escorted from the deport to the

stations all the time the petrol stations receive their supplies, it was found that 26.3% of

the validly interviewed respondents disagreed and strongly disagreed with the opinion,

68.4% of the validly interviewed respondents agreed and strongly agreed with the opinion

while 5.3% of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that fuel

is escorted from the deport to the stations all the time the petrol stations receive their

supplies as shown in the table 4.10 below.

Table 4.10: Fuel Escort

Frequency Percent

Strongly Agree 39 29.3

Agree 52 39.1

Not sure 7 5.3

Disagree 27 20.3

Strongly Disagree 8 6.0

Total 133 100.0

4.3.12 Fuel Delivery

Research was done to investigate the opinion that fuel is delivered to the stations by the

suppliers, it was found that 26.1% of the validly interviewed respondents disagreed and

strongly disagreed with the opinion, 68.7% of the validly interviewed respondents agreed

42

and strongly agreed with the opinion while 5.2% of the validly interviewed respondents

were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that fuel

is delivered to the stations by the suppliers as shown in the table 4.11 below.

Table 4.11: Fuel Delivery

Frequency Percent

Strongly Agree 38 28.4

Agree 54 40.3

Not sure 7 5.2

Disagree 20 14.9

Strongly Disagree 15 11.2

Total 134 100.0

4.3.13. Correlation Test among the Operational Risks

A Pearson correlation analysis was conducted to investigate whether there is relationship

among the typical operational risks for the petroleum filling stations. It was found that

there was correlation between

The station having fraud cases within the last six months and the station having identified

fraud as a key factor contributing to abnormal fuel losses (p=.009 r=0.224)

The station having identified fraud cases within the last six months and The station

experience abnormal losses on Super (PMS) above 0.5% (p=.0.002 r=.0.269)

The station having identified fraud cases within the last six months and the station

experience abnormal losses on Diesels (AGO) above 0.5% (p=.0.001 r=.0.279)

The station having identified fraud as a key factor contributing to abnormal fuel losses

and the station experience abnormal losses on Super (PMS) above 0.5%. (p=.0.000

r=.0.478)

The station having identified fraud as a key factor contributing to abnormal fuel losses

and The station experience abnormal losses on Diesels (AGO) above 0.5% (p=.0.00

r=.0.324). The station experiencing abnormal losses on Super (PMS) above 0.5% and the

station experience abnormal losses on Diesels (AGO) above 0.5 %.( p=.0.00 r=.0.702)

43

Table 4.12: Correlation Test 1

The station

has had

cases of

fraud within

the last six

months.

The station has

identified fraud

as a key factor

contributing to

abnormal fuel

losses.

The station

experience

abnormal

losses on

Super (PMS)

above 0.5%.

The station

experience

abnormal

losses on

Diesels (AGO)

above 0.5%.

The station has had

cases of fraud within

the last six months.

Pearson

Correlation 1 .224** .269** .279**

Sig. (2-tailed) .009 .002 .001

N 135 134 133 131

The station has

identified fraud as a

key factor

contributing to

abnormal fuel losses.

Pearson

Correlation .224** 1 .478** .324**

Sig. (2-tailed) .009 .000 .000

N 134 134 132 130

The station

experience abnormal

losses on Super

(PMS) above 0.5%.

Pearson

Correlation .269** .478** 1 .702**

Sig. (2-tailed) .002 .000 .000

N 133 132 134 130

The station

experience abnormal

losses on Diesels

(AGO) above 0.5%.

Pearson

Correlation .279** .324** .702** 1

Sig. (2-tailed) .001 .000 .000

N 131 130 130 133

**. Correlation is significant at the 0.01 level (2-tailed).

44

4.4 Challenges against Operational Risk in the Petroleum Filling Station

4.4.1 Credit Sale

Research was done to investigate the opinion that credit sales contribute cash-flow

challenge to the stations; it was found that 29.3% of the validly interviewed respondents

disagreed and strongly disagreed with the opinion, 63.1% of the validly interviewed

respondents agreed and strongly agreed with the opinion while 7.5% of the validly

interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that

credit sales contribute cash-flow challenge to the stations as shown in the table 4.13

below.

Table 4.13: Credit Sale

Frequency Percent

Strongly Agree 26 19.5

Agree 58 43.6

Not sure 10 7.5

Disagree 24 18.0

Strongly Disagree 15 11.3

Total 133 100.0

4.4.2 Cash Sales

Research was done to investigate the opinion that cash sales is a significant contributor to

abnormal losses in the station, it was found that 69.2% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 21% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 9.8% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that cash sales is a significant contributor to abnormal losses in the station as shown in the

table 4.14 below.

45

Table 4.14: Cash Sales

Frequency Percent

Strongly Agree 8 6.0

Agree 20 15.0

Not sure 13 9.8

Disagree 56 42.1

Strongly Disagree 36 27.1

Total 133 100.0

4.4.3 Adulteration of Products

Research was done to investigate the opinion that the risk of adulteration of products

(especially PMS and AGO) is a major challenge to the station, it was found that 66.4% of

the validly interviewed respondents disagreed and strongly disagreed with the opinion,

15.3% of the validly interviewed respondents agreed and strongly agreed with the opinion

while 18.3% of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that the risk of adulteration of products (especially PMS and AGO) is a major challenge

to the station as shown in the table 4.15 below.

Table 4.15: Adulteration of Products

Frequency Percent

Strongly Agree 4 3.1

Agree 16 12.2

Not sure 24 18.3

Disagree 49 37.4

Strongly Disagree 38 29.0

Total 131 100.0

4.4.4 Monthly Price Changed by ERC

Research was done to investigate the opinion that the monthly price change by ERC

contribute to an increase in stock-out cost in the station, it was found that 34.1% of the

validly interviewed respondents disagreed and strongly disagreed with the opinion, 46.2%

of the validly interviewed respondents agreed and strongly agreed with the opinion while

18.9% of the validly interviewed respondents were not sure about the opinion.

46

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

monthly price changes change by ERC contribute to an increase in stock out cost to the

station as shown in the table 4.16 below

Table 4.16: Monthly Price Changes by ERC

Frequency Percent

Strongly Agree 15 11.4

Agree 46 34.8

Not sure 25 18.9

Disagree 21 15.9

Strongly Disagree 25 18.2

Total 132 100.0

4.4.5 Price Margins

Research was done to investigate the opinion that the monthly price change by ERC

affect the price margins in the station, it was found that 23.1% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 60.4% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 16.4% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

monthly price change by ERC affect the price margins in the station as shown in the table

4.17 below

Table 4.17: Price Margins

Frequency Percent

Strongly Agree 24 17.9

Agree 57 42.5

Not sure 22 16.4

Disagree 17 12.7

Strongly Disagree 14 10.4

Total 134 100.0

47

4.4.6 Staff Turn-Over

Research was done to investigate the opinion that the staff turn-over is a major challenge

to risk minimization in the station, it was found that 40.9% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 37.8% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 21.2% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that the staff turn-over is a major challenge to risk minimization in the station as shown in

the table 4.18 below

Table 4.18: Staff Turn-Over

Frequency Percent

Strongly Agree 13 9.8

Agree 37 28.0

Not sure 28 21.2

Disagree 39 29.5

Strongly Disagree 15 11.4

Total 132 100.0

4.4.7 Staff Training

Research was done to investigate the opinion that the Staff training is one of the major

cost center in the station, it was found that 57.4% of the validly interviewed respondents

disagreed and strongly disagreed with the opinion, 30.6% of the validly interviewed

respondents agreed and strongly agreed with the opinion while 11.9% of the validly

interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that the Staff training is one of the major cost center in the station as shown in the table

4.19 below

48

Table 4.19: Staff Training

Frequency Percent

Strongly Agree 9 6.7

Agree 32 23.9

Not sure 16 11.9

Disagree 57 42.5

Strongly Disagree 20 14.9

Total 134 100.0

4.4.8 Training Cost

Research was done to investigate the opinion that the training cost is a limiting factor in

efficient risk management in the station, it was found that 57.4% of the validly

interviewed respondents disagreed and strongly disagreed with the opinion, 30.6% of the

validly interviewed respondents agreed and strongly agreed with the opinion while 11.9%

of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that the training cost is a limiting factor in efficient risk management in the station as

shown in the table 4.20 below

Table 4.20: Training Cost

Frequency Percent

Strongly Agree 10 7.5

Agree 31 23.1

Not sure 16 11.9

Disagree 56 41.7

Strongly Disagree 21 15.7

Total 134 100.0

49

4.4.9 Credit Sales

Research was done to investigate the opinion that the credit sales is a key contributor

abnormal losses for the station, it was found that 68.2% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 18.9% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 12.9% of the

validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents disagreed and strongly disagreed with the opinion

that the credit sales is a key contributor abnormal losses for the station as shown in the

table 4.21below

Table 4.21: Credit Sales

Frequency Percent

Strongly Agree 7 5.3

Agree 18 13.6

Not sure 17 12.9

Disagree 55 41.7

Strongly Disagree 35 26.5

Total 132 100.0

4.4.10 Amount of Cash on Hand

Research was done to investigate the opinion that the amount cash on hand is a factor to

abnormal losses for the station, it was found that 73.5% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 14.4% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 12.1% of the

validly interviewed respondents were not sure about the opinion. Thus the majority of the

respondents disagreed and strongly disagreed with the opinion that the amount cash on

hand is a factor to abnormal losses for the station as shown in the table 4.22 below

50

Table 4.22: Amount Cash on Hand

Frequency Percent

Strongly Agree 7 5.3

Agree 12 9.1

Not sure 16 12.1

Disagree 59 44.7

Strongly Disagree 38 28.8

Total 132 100.0

4.4.11 Correlation Test among the Challenges against Operational Risks

A Pearson correlation analysis was conducted to investigate whether there is relationship

among the challenges against operational risks for the petroleum filling stations. It was

found that there was correlation between:

Staff turn-over being a major challenge to risk minimization in the station and Staff

training being one of the major cost center in the station(p=.0.031 r=.0.189)

Staff turn-over being a major challenge to risk minimization in the station and Credit

sales being a key contributor abnormal losses for our station(p=0.0.026 r=.0.196)

Staff turn-over being a major challenge to risk minimization in the station and the amount

cash on hand being a factor to abnormal losses for the station.(p=.001 r=.278)

Staff training being one of the major cost centre in the station and Training cost being a

limiting factor in efficient risk management in the station(p=.0.042 r=.176)

Credit sales being a key contributor to abnormal losses for the station and the amount

cash on hand being a factor to abnormal losses for the station (p=.017 r=.209)

And the results are as shown in the table 4.23 below

51

Table 4.23: Correlation Test 2

Staff turn-over is a

major challenge to risk

minimization in the

station

Staff training

is one of the

major cost

centre in the

station

Training cost is a

limiting factor in

efficient risk

management in the

station

Credit sales is a key

contributor abnormal

losses for our station

The amount cash on

hand is a factor to

abnormal losses for

the station

Staff turn-over is a

major challenge to risk

minimization in the

station

Pearson Correlation 1 .189* 0.165 .196* .278**

Sig. (2-tailed) 0.031 0.059 0.026 0.001

N 132 131 131 129 129

Staff training is one of

the major cost centre in

the station

Pearson Correlation .189* 1 .176* 0.146 0.112

Sig. (2-tailed) 0.031 0.042 0.094 0.201

N 131 134 133 132 131

Training cost is a

limiting factor in

efficient risk

management in the

station

Pearson Correlation 0.165 .176* 1 -0.113 0.067

Sig. (2-tailed) 0.059 0.042 0.199 0.450

N 131 133 134 131 131

Credit sales is a key

contributor abnormal

losses for our station

Pearson Correlation .196* 0.146 -0.113 1 .209*

Sig. (2-tailed) 0.026 0.094 0.199 0.017

N 129 132 131 132 129

The amount cash on

hand is a factor to

abnormal losses for the

station

Pearson Correlation .278** 0.112 0.067 .209* 1

Sig. (2-tailed) 0.001 0.201 0.450 0.017

N 129 131 131 129 132

*. Correlation is significant at the 0.05 level (2-tailed).

**. Correlation is significant at the 0.01 level (2-tailed).

52

4.5 Best Practices on the Operational Risks Management for Petroleum Station 4.5.1 Accurate Monitoring and Recording

Research was done to investigate the opinion that in the station the quantities of fuel

delivered, stored and dispensed are accurately monitored and recorded on a daily basis, it

was found that 3.9% of the validly interviewed respondents disagreed and strongly

disagreed with the opinion, 93.1% of the validly interviewed respondents agreed and

strongly agreed with the opinion while 3.1% of the validly interviewed respondents were

not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that in

the station the quantities of fuel delivered, stored and dispensed are accurately monitored

and recorded on a daily basis as shown in the table 4.24 below

Table 4.24: Accurate Monitoring and Recording

Frequency Percent

Strongly Agree 68 52.3

Agree 53 40.8

Not sure 4 3.1

Disagree 4 3.1

Strongly Disagree 1 0.8

Total 130 100.0

4.5.2 Loss/Gain Trend Review

Research was done to investigate the opinion that the stations review the loss/gain trends

daily for variances from the usual trend of the tank and for any loss or gain exceeding

acceptable levels based on deliveries, sales for that day and seasonality, it was found that

6.1% of the validly interviewed respondents disagreed and strongly disagreed with the

opinion, 84.7% of the validly interviewed respondents agreed and strongly agreed with

the opinion while 9.2% of the validly interviewed respondents were not sure about the

opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations review the loss/gain trends daily for variances from the usual trend of the tank

and for any loss or gain exceeding acceptable levels based on deliveries, sales for that

day and seasonality as shown in the table 4.25 below

53

Table 4.25: Loss/Gain Trend Review

Frequency Percent

Strongly Agree 62 47.3

Agree 49 37.4

Not sure 12 9.2

Disagree 6 4.6

Strongly Disagree 2 1.5

Total 131 100.0

4.5.3 Staff Training

Research was done to investigate the opinion that the stations train staff to promptly

identify abnormal variance and on what action to be taken, it was found that 9.9% of the

validly interviewed respondents disagreed and strongly disagreed with the opinion, 84.8%

of the validly interviewed respondents agreed and strongly agreed with the opinion while

5.3% of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations train staff to promptly identify abnormal variance and on what action to be taken

as shown in the table 4.26 below

Table 4.26: Staff Training

Frequency Percent

Strongly Agree 47 35.9

Agree 64 48.9

Not sure 7 5.3

Disagree 10 7.6

Strongly Disagree 3 2.3

Total 131 100.0

54

4.5.4 Risk Review

Research was done to investigate the opinion that the stations reviews risk assessment

periodically and follows up any significant changes, it was found that 3.9% of the validly

interviewed respondents disagreed and strongly disagreed with the opinion, 87.6% of the

validly interviewed respondents agreed and strongly agreed with the opinion while 8.5%

of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations reviews risk assessment periodically and follows up any significant changes as

shown in the table 4.27 below

Table 4.27: Risk Review

Frequency Percent

Strongly Agree 48 37.2

Agree 65 50.4

Not sure 11 8.5

Disagree 3 2.3

Strongly Disagree 2 1.6

Total 129 100.0

4.5.5 Records of Staff Training

Research was done to investigate the opinion that the stations maintain records of staff

training and keeps it as part of the safety management documentation, it was found that

6.2% of the validly interviewed respondents disagreed and strongly disagreed with the

opinion, 90% of the validly interviewed respondents agreed and strongly agreed with the

opinion while 3.9% of the validly interviewed respondents were not sure about the

opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations reviews risk assessment periodically and follows up any significant changes as

shown in the table 4.28 below

55

Table 4.28: Records of Staff Training

Frequency Percent

Strongly Agree 46 35.7

Agree 70 54.3

Not sure 5 3.9

Disagree 7 5.4

Strongly Disagree 1 0.8

Total 129 100.0

4.5.6 Periodic Testing of Water

Research was done to investigate the opinion that the stations carry out periodic testing

for the presence of water in the underground tanks to detect failure of tank shell or pipe-

work connection, it was found that 4.5% of the validly interviewed respondents disagreed

and strongly disagreed with the opinion, 92.5% of the validly interviewed respondents

agreed and strongly agreed with the opinion while 3% of the validly interviewed

respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations carry out periodic testing for the presence of water in the underground tanks to

detect failure of tank shell or pipe-work connection as shown in the table 4.29 below

Table 4.29: Periodic Testing of Water

Frequency Percent

Strongly Agree 55 41.0

Agree 69 51.5

Not sure 4 3.0

Disagree 4 3.0

Strongly Disagree 2 1.5

Total 134 100.0

4.5.7 Causes of Harm

Research was done to investigate the opinion that the stations always look out for

anything that has the potential to cause harm, in terms of human injury, ill-health or

damage to property, it was found that 3.7% of the validly interviewed respondents

56

disagreed and strongly disagreed with the opinion, 93.3% of the validly interviewed

respondents agreed and strongly agreed with the opinion while 3% of the validly

interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations always look out for anything that has the potential to cause harm, in terms of

human injury, ill-health or damage to property as shown in the table 4.30 below

Table 4.30: Causes of Harm

Frequency Percent

Strongly Agree 56 41.8

Agree 69 51.5

Not sure 4 3.0

Disagree 2 1.5

Strongly Disagree 3 2.2

Total 134 100.0

4.5.8 Stock Maintenance

Research was done to investigate the opinion that the stations always maintain minimal

stock before the monthly price change, it was found that 22.6% of the validly interviewed

respondents disagreed and strongly disagreed with the opinion, 65.5% of the validly

interviewed respondents agreed and strongly agreed with the opinion while 12% of the

validly interviewed respondents were not sure about the opinion.

Thus, the majority of the respondents agreed and strongly agreed with the opinion that

the stations always maintain minimal stock before the monthly price change as shown in

the table 4.31 below

Table 4.31: Stock Maintenance

Frequency Percent

Strongly Agree 30 23.4

Agree 57 42.1

Not sure 16 12.0

Disagree 17 12.8

Strongly Disagree 13 9.8

Total 133 100.0

57

4.5.9 Fuel Transportation

Research was done to investigate the opinion that the stations transport their own fuel

from the deport, it was found that 40.6% of the validly interviewed respondents disagreed

and strongly disagreed with the opinion, 54.2% of the validly interviewed respondents

agreed and strongly agreed with the opinion while 5.3% of the validly interviewed

respondents were not sure about the opinion. Thus the majority of the respondents agreed

and strongly agreed with the opinion that the stations transport their own fuel from the

deport as shown in the table 4.32 below

Table 4.32: Fuel Transportation

Frequency Percent

Strongly Agree 32 24.1

Agree 40 30.1

Not sure 7 5.3

Disagree 30 22.6

Strongly Disagree 24 18.0

Total 133 100.0

4.5.10 Information to Employees

Research was done to investigate the opinion that the stations provide adequate training

and relevant information for all employees, it was found that 14.4% of the validly

interviewed respondents disagreed and strongly disagreed with the opinion, 84.1% of the

validly interviewed respondents agreed and strongly agreed with the opinion while 1.5%

of the validly interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations provide adequate training and relevant information for all employees as shown in

the table 4.33 below

Table 4.33: Information to Employees

Frequency Percent

Strongly Agree 52 39.4

Agree 59 44.7

Not sure 2 1.5

Disagree 14 10.6

Strongly Disagree 5 3.8

Total 132 100.0

58

4.5.11 General Principles of Risk Assessment

Research was done to investigate the opinion that the general principles of risk

assessment are included in the operational policy manual and it is available to both

management and staff, it was found that 3.9% of the validly interviewed respondents

disagreed and strongly disagreed with the opinion, 86.1% of the validly interviewed

respondents agreed and strongly agreed with the opinion while 10% of the validly

interviewed respondents were not sure about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

general principles of risk assessment are included in the operational policy manual and it

is available to both management and staff as shown in the table 4.34 below

Table 4.34: General Principles of Risk Assessment

Frequency Percent

Strongly Agree 46 35.1

Agree 67 51

Not sure 13 10

Disagree 4 3.1

Strongly Disagree 1 0.8

Total 131 100.0

4.5.12 Fire Extinguishers

Research was done to investigate the opinion that the stations have portable fire

extinguishers, which are serviced once a year, it was found that 4.6% of the validly

interviewed respondents disagreed and strongly disagreed with the opinion, 94.6% of the

validly interviewed respondents agreed and strongly agreed with the opinion while 0.8%

of the validly interviewed respondents were not sure about the opinion. Thus the majority

of the respondents agreed and strongly agreed with the opinion that the stations have

portable fire extinguishers, which are serviced once a year, as shown in the table 4.35

below

59

Table 4.35: Fire Extinguishers

Frequency Percent

Strongly Agree 66 50.8

Agree 57 43.8

Not sure 1 .8

Disagree 4 3.1

Strongly Disagree 2 1.5

Total 130 100.0

4.5.13 Emergency Plan

Research was done to investigate the opinion that the stations have emergency plan for

minimization the effect of emergency that may occur at any point of the premises, it was

found that 3% of the validly interviewed respondents disagreed and strongly disagreed

with the opinion, 94.8% of the validly interviewed respondents agreed and strongly

agreed with the opinion while 2.3% of the validly interviewed respondents were not sure

about the opinion.

Thus the majority of the respondents agreed and strongly agreed with the opinion that the

stations have emergency plan for minimization the effect of emergency that may occur at

any point of the premises, as shown in the table 4.36 below

Table 4.36: Emergency Plan

Frequency Valid Percent

Strongly Agree 61 45.9

Agree 65 48.9

Not sure 3 2.3

Disagree 2 1.5

Strongly Disagree 2 1.5

Total 133 100.0

4.5.14 Compensation

Research was done to investigate the opinion that the stations are compensated (by the oil

company) on the loss based balance of product held, when there is a decrease in pricing

by ERC, it was found that 45.2% of the validly interviewed respondents disagreed and

60

strongly disagreed with the opinion, 23.3% of the validly interviewed respondents agreed

and strongly agreed with the opinion while 31.6% of the validly interviewed respondents

were not sure about the opinion. Thus the majority of the respondents disagreed and

strongly disagreed with the opinion that the stations are compensated (by the oil

company) on the loss based balance of product held, when there is a decrease in pricing

by ERC, as shown in the table 4.37 below

Table 4.37: Compensation

Frequency Percent

Strongly Agree 12 9.0

Agree 19 14.3

Not sure 42 31.6

Disagree 30 22.6

Strongly Disagree 30 22.6

Total 133 100.0

4.5.15: Correlation Test among the Good Practices on Operational Risks

A Pearson correlation analysis was conducted to investigate whether there is relationship

among the good practices on the operational risks management for the petroleum filling

stations. It was found that there was correlation between: The quantities of fuel delivered,

stored, dispensed and accurately monitored and recorded on a daily basis in the station

and the station’s review of daily losses/gains trends exceeding acceptable levels based on

deliveries, sales for that day and seasonality (p=.0.00 r=.0.653). The quantities of fuel

delivered, stored, dispensed and accurately monitored and recorded on a daily basis and

the stations training of staff to promptly identify abnormal variance and on what action

to be taken (p=.000 r=.0.329)

The quantities of fuel delivered, stored, dispensed and accurately monitored and recorded

on a daily basis and the Station’s review of risk assessment periodically and follow up on

significant changes (p=.00 r=.0.540). The station daily review of losses/gains trends of

variances exceeding acceptable levels based on deliveries, daily sales and seasonality and

the station training of staff to promptly identify abnormal variance and on the action to

be taken (p=.000 r=.0.450). The station daily review of losses/gains trends daily trend of

variances exceeding acceptable levels based on deliveries, daily sales and seasonality and

the Station’s review of periodical risk assessment and follow ups on significant changes.

61

(p=.000 r=.0.648). The station training of staff to promptly identify abnormal variance

and on what action to be taken and the Station’s review of periodical risk assessment and

follow ups on significant changes (p=.000 r=.0.536)

The results are as shown in the table 4.38 below

Table 4.38: Correlation Test on Good Practices on Operational Risks

In the station that

the quantities of

fuel delivered,

stored and

dispensed are

accurately

monitored and

recorded on a

daily basis.

The station

review the

loss/gain trends

daily for

variances from

the usual trend of

the tank and for

any loss or gain

exceeding

acceptable levels

based on

deliveries, sales

for that day and

seasonality.

The station trains

staff to promptly

identify abnormal

variance and on

what action to be

taken.

In the station that the

quantities of fuel

delivered, stored and

dispensed are accurately

monitored and recorded

on a daily basis.

Pearson

Correlation 1 .653** .329**

Sig. (2-

tailed)

0 0

N 130 130 130

The station review the

loss/gain trends daily for

variances from the usual

trend of the tank and for

any loss or gain

exceeding acceptable

levels based on

deliveries, sales for that

day and seasonality.

Pearson

Correlation .653** 1 .450**

Sig. (2-

tailed) 0

0

N 130 131 131

The station trains staff

to promptly identify

abnormal variance and

on what action to be

taken.

Pearson

Correlation .329** .450** 1

Sig. (2-

tailed) 0 0

N 130 131 131

The Station reviews risk

assessment periodically

and follows up any

significant changes.

Pearson

Correlation .540** .648** .536**

Sig. (2-

tailed) 0 0 0

N 128 129 129

**. Correlation is significant at the 0.01 level (2-tailed).

62

4.5.16. Correlation Test between Good Practices and Typical Operational Risk

A Pearson correlation analysis was conducted to investigate whether there is relationship

between the good practices on operational risks management for petroleum station and

the typical operational risks for petroleum filling station. The analysis reveals that the

Pearson correlation is 0.186 meaning there a positive relationship and the Sig. (2-taild)

(p-value) is 0.029 which is less than 0.05 level of significance, meaning that there is

statistical significant relationship. From the analysis it’s concluded that there is a positive

statistically significant relationship between good practices on operational risks

management for petroleum station and the typical operational risks for petroleum filling

station as shown in the table 4.39 below.

Table 4.39: Correlations test

Good Practices Pearson Correlation 1 .186*

Sig. (2-tailed) .029

N 138 138

Typical Operational Risk for

Petroleum

Pearson Correlation .186* 1

Sig. (2-tailed) .029

N 138 138

*. Correlation is significant at the 0.05 level (2-tailed).

4.6 Chapter Summary

This chapter presents the results and findings of the study. Findings are presented in

frequency tables and graphs/figures. The presentation is aligned to the research questions

and covers on the reports of the typical operational risks for petroleum filling station, the

challenges against operational risk in the petroleum filling station, the good practices on

operational risks management for petroleum station and finally the last part provides the

reports on the inferential statistics testing the relationship between the research questions.

The next chapter presents the discussion of findings, conclusions and recommendations.

63

CHAPTER FIVE

5.0 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 Introduction

In this chapter, the researcher provides the major summary of the study, a discussion on

the findings of the research as compared to the findings in the literature review,

recommendations for further improvement that needs to be taken in order. The study

pursued three research questions upon which conclusions are aligned to.

5.2 Summary of the Findings

The main objective was to investigate the situational analysis with a specific view of

examining both internal and external factors affecting operation risk management in

petroleum filling stations in Kenya. The research questions were; the typical Operation

Risks for Petroleum Filling Station, the Challenges against Management of Operation

Risk for Petroleum Filling Station and lastly the Best Practices for Managing Operation

Risk in Petroleum Filling Station. The study sampled 100 Petroleum Service Stations

with at least one questionnaire.138 questionnaires were duly completed from 94

petroleum service station and returned for analysis; this represented 94% response rate.

From the general information provided by the respondents on the position held within the

organization, it was found that 1 respondent who represents 0.7% of the validly

interviewed respondents was the owner of the organization, 12 respondents who represent

8.7% of the validly interviewed respondents were dealers, 35 respondents who represent

25.4% of the validly interviewed respondents were managers within the organizations, 27

respondents who represent 19.6% of the validly interviewed respondents were supervisors

within the organizations whereas 63 respondents who were 45.7% of the validly

interviewed respondents were pump attendants within the organizations. This shows that

majority of the employees are employed while the owners and Dealers duties and

responsibilities is to oversee the operations.

The researcher applied both quantitative and qualitative data analysis techniques. While

the qualitative technique applied both individual depth interviews and participant

observation, the quantitative method applied descriptive statistics of phenomenon. The

collected data was coded, entered into the system and analyzed using version 20 of SPSS

64

Statistics program. Upon tabulation of the data and interpretation of the underlying

discoveries the researcher evaluated the extent to which the research questions were

addressed. Quantitative data were measured on a numerical scale and presentation of the

results and findings were done in terms of tables and graphs.

Most of petroleum filling stations in Nairobi County have embraced the operational risk

management best practices which include risk identification, assessment, mitigation and

monitoring, this has resulted to reduced abnormal losses. Majority of station owners,

dealers and managers have domesticated best practice of operational risk management

and have effectively felt the impact of a minimized ORM challenges. The analysis

revealed that the compliance to best practices of ORM is not only good for success in the

operations as a business enterprise in terms to a positive bottom line but also for

protection of all stakeholders including customers.

5.3 Discussion

5.3.1 Typical Operation Risks for Petroleum Filling Station

From the findings of the study, there is a statistically significant relationship between

good practices on operational risks management for petroleum station and the challenges

against operational risk in the petroleum filling station. It can therefore be concluded that

operation Risk Management affects positively petroleum station. It can also be concluded

that the respondents are gradually embracing operation risk management techniques as a

tool for overcoming the challenges against operational risk in the petroleum filling

station. This is supported by the high number of respondents who indicated that they have

operational risk management system in their stations which is encouraging despite having

a small minority who did not reckon with operation risk management. The study found

out that regular meetings and training of employees on the operational risk management

would enhance their knowledge and skills with the same. There is a need to look at other

aspects of operational risk management on the petroleum station in other counties in

Kenya.

Petroleum filling stations are generally large investment, operates both day and night

shifts and usually a high risk enterprise, hence the need for operational risk management.

Although the risks of petroleum operations at the station are very complex, as long as

petroleum stations can identify risk’s causes, characteristics and nature, to some extent, it

65

can prevent and control risks the resulting to a reduction of abnormal losses. The findings

showed that there is lower fraud in the stations. The analysis reflected significant fuel

losses after delivery and after sales.

From the literature reviewed showed that there is more likely leakage from tanks and

pipe-work if equipment were poorly installed, inadequately maintained, or old. Where the

integrity of the storage system cannot be ensured, for example by the provision of

secondary containment, it can be augmented in a number of ways such as: wet-stock

measurement and reconciliation or by fitting a leak detection system. Additionally,

periodic testing for the presence of water in underground tanks may indicate a failure in

the tank shell, gaskets sealing the tank lid or pipe-work connections. The methods used

depend on the level of risk at the petrol station. Petrol station normally deal with small

leakages and spillages by apply dry sand or other absorbent materials. The materials used

in this way are contaminated with petrol hence they are stored in safe place like a closed

bin or other container prior to disposal.

5.3.2 Challenges against Operational Risk in the Petroleum Filling Station

Given the nature of petroleum and associated products that petrol stations handle, the

stations are faced with multiple safety, health and environmental issues that

dealers/owners and management teams ought to thoroughly identify and prepare to

eliminate or minimize they include; Fraud, Abnormal Fuel Losses, fuel losses after

delivery, fuel losses after sales Petrol Leaks and Spills. Thus, it’s imperative to the

petroleum Filling stations that operational risk management be integral to all

stakeholders; namely dealers, owners, managers and pump attendants this is according to

Yerevan, (2008). The main principles of operational risk management that ought to be

focused on in petrol station are risk identification, risk assessment, risk mitigation and

risk monitoring. The first step is the identification of all or most of the risks likely to

affect the operations in petroleum station filling stations. Once these operational risks are

identified, assessment of the potential impacts done. Then, the most viable, appropriate

and effective best practice should be implemented. The effectiveness of this practice

should be assessed to establish if they are achieving the set operational risk management

objectives.

66

On spillage losses made up of contributions from prefill and post fill nozzle drip and from

spit-back and overflow from the vehicle’s fuel tank filler pipe during filling whose

amount is dependent on several variables, including service station business

characteristics; tank configuration; and operator techniques; the station staffs should be

trained on how to urgently deal with the situation and facilitate customer to immediately

washing the affected parts of their body and the removal contaminated clothing. The

amount of spillage loss can depend on several variables, including service station

business characteristics, tank configuration, and operator techniques. This is evident as

suggested by the (Health and Safety Authority Dublin 2013.

Credit Sale analysis was done to investigate the opinion that credit sales contribution to

cash-flow challenges to the stations, the analysis revealed significant contribution to

abnormal losses in the station. Analysis on Product adulteration was done to a firm the

opinion that the risk of adulteration of products (especially PMS and AGO) is a major

challenge to the station, the response from respondents disagreed and strongly disagreed

with the opinion.

Research was done to investigate the opinion that the monthly price change by ERC

contribute to an increase in stock-out cost in the stations the result of which reveled that

ERC price change significantly contribute to stock-out cost. The other analysis was if the

staff turn-over was a major challenge to risk minimization in the station, the respondents

highly disagreed. As to whether staff training was a major cost center in the stations the

finding revealed it was insignificant. And to the opinion that the training cost was a

limiting factor in efficient risk management in the stations the findings were insignificant

too. However the analysis confirmed the opinion that the credit sales were a key

contributor to abnormal losses for the stations. While cash on hand analysis was done to

investigate the opinion that the amount of cash on hand is a factor to abnormal losses for

the stations, the findings were that majority of the respondents disagreed.

5.3.3 Best Practices for Managing Operation Risk in Petroleum Filling Station

In the case of petrol filling stations in Nairobi County, although most respondents felt that

operational risk management was integral to their operation, the findings indicated that a

lot still need to be done with respect to risk identification, assessment, and mitigation and

monitoring this is evident as asserted by zaggaris that there are a lot of fraud that goes

67

around in the petrol station the concerned people should be conscious about this. In fact,

risk prevention is not accorded the attention it deserves, given the responses regarding the

preventive measures so far put in place. Petrol filling stations should not only identify the

risks to which they are exposed but should also carry out risk assessment periodically to

ensure domestication of the best practice. Second, the occurrence and severity of the

identified operational risks should be established in time so that prevention or

minimization steps are taken before their occurrence. It is worth noting that although risks

might be identified, their chances of occurring and potential severity could be overlooked

in many cases. According to Health and Safety Authority, Dublin 2013, it asserts that

inventory monitoring as a method for detecting leaks depends on a number of factors: the

reliability of the measurement i.e. the accuracy of the contents gauge or dip; accurate

recording of sales and deliveries; and a competent assessment of trends indicated by the

results. Assessment means comparing results over a period of time, taking into account

the possible effects of significant temperature variations on volumetric measurement, the

loss of petrol through vapor release, for example during tank or compartment filling, and

examining the results of checks for the presence of water as accorded.

Once risks are identified and their potential effects established through assessment, the

best practice should be applied, followed by constant monitoring and evaluation to check

whether the practice is effective in prevention or minimization of the impacts of the

identified operational risks. Without recognizing and strictly following the sequence of

these core practices of operational risk management, petrol filling stations in Nairobi

County and other counties in the Kenya for that matter, will not effectively manage the

high operational risks associated with petroleum products. The study also established the

importance of collaboration within the business structures or hierarchy in matters of

operational risk management, hence the need to involve all stakeholders.

Analysis was conducted to investigate whether there is relationship between the good

practices on operational risks management for petroleum station and the challenges

against operational risk in the petroleum filling station. The findings revealed a positive

statistically significant relationship between good practices on operational risks

management for petroleum station and the typical operational risks for petroleum filling

station. The Regulations also places some specific duties on owner or operator to control

risks associated with particular aspects of storage and handling of dangerous goods.

68

However giving effect to these specific duties does not displace their general obligation to

control risk.

Petroleum Filling Stations should organize continuous training for staff so that they

enhance their knowledge on operation risk management skills. Effective communication

with employees to make them aware of the operation risks management in the stations is

highly recommended as it helps them understand its contribution to financial management

hence a healthy bottom-line and increased reward to all stakeholders. All stakeholders are

thus called upon to work as a team in risk identification, assessment, mitigation and

monitoring.

5.4 Recommendations

The following recommendations are for stakeholders in petroleum filling stations in all 47

Counties in Kenya.

5.4.1 Typical Operation Risks for Petroleum Filling Station

All petroleum filling stations not only in Nairobi County but also in other Counties in the

Kenya should embrace the Operational risk management best practices which include risk

identification, assessment, and mitigation and monitoring, this will result to reduction of

the abnormal losses experienced in petroleum filling stations.

5.4.2 Challenges against Operational Risk in the Petroleum Filling Station

The station owners, dealers and managers should invest in the preventive best practice of

operational risk management since their effectiveness and efficient application in

petroleum filling station minimizes ORM challenges as is evidence from the findings of

this study.

5.4.3 Best Practices for Managing Operation Risk in Petroleum Filling Station

Regulator (ERC) and other related agencies such as Petroleum Institute should also

ensure the best practice of operational risk management and compliance with regulations

and policies on workplace environment, safety and health are achieved by petroleum

filling stations given the embedded high-risk nature of these enterprise. The compliance

of which is not only good for success in the operations as a business enterprise but also

for protection of all stakeholders including customers at such fuel outlets.

69

5.5. Suggestion for Further Research

This study focused on the Operational Risk Management in Petroleum Filling Station in

Kenya. Similar study can be carried out in other counties to evaluate the consistency of

the operation risk management in Petroleum filling stations and oil industry as a whole. A

further study should focus on the causes of abnormal fuel losses and their remedies

between the deport and the stations that end up contributing to the petroleum filling

stations losses.

70

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74

APPENDICES

APPENDIX 1: INTRODUCTION LETTER

Dear Respondent,

I am a graduate student studying for a Degree in Master of Business Administration

(MBA) at the United States International University – Africa (USIU-Africa).

Please find the attached questionnaire that collects data on Petroleum Filling Station.

This will involve: The Typical Operational Risks for Petroleum Filling Station;

Challenges against Operational Risk in the Petroleum Filling Stations; and what are the

Good Practices on Operational Risks Management for Petroleum Filling Stations.

You are requested to provide the required information in the questionnaire. I hereby

assure you that any opinion and information obtained in regard to this study shall be

treated with utmost confidentiality and shall be used only for the intended research and

that no individual responses shall be reported.

It is imperative to note that the study will be of great importance to various stakeholders

who will include all Petroleum Filling Stations, Oil Companies, Investors in the oil

Industry, and Government Agencies such as ERC, Researchers and Academicians. The

study will benefit to a greater extend Petroleum Service Stations who will adopt to the

proposed innovative and improved services and solutions to the challenges they face.

I will highly appreciate your assistance in filling the questionnaire and should you require

a summary of the findings kindly contact me using the address provided below.

Thank you in advance for your support and time.

John O. Magambo

Phone: 0722716061

EMAIL:johnodhiambom@gmail.co

75

APPENDIX 2: QUESTIONNAIRE

Part A: Background Information

Kindly, fill all the questions either by ticking () in the boxes or writing in the

spaces provided.

NAME (Optional) ……………………………………………………

1. Please indicate your position/level in the organization.

Owner ( ) Dealer ( ) Manager ( ) Supervisor ( ) Pump Attendant ( )

2. How long have you been in this position?

1-5 Years ( ) 6-10 Years ( ) 11-15 Years ( ) 16-20 Years ( )

21 and above ( )

3. Please indicate your highest level of qualifications.

High School ( ) Degree ( ) Post-graduate ( ) Doctorate ( )

Other ( ) please state………………………

76

SECTION B. WHAT ARE THE TYPICAL OPERATIONAL RISKS FOR

PETROLEUM FILLING STATION?

In the table below, tick appropriately. Using a scale of 1-5 tick the appropriate answer

from the alternatives, 1- Strongly Agree 2-Agree 3-Not Sure 4-Disagree 5- Strongly

Disagree

Please show your level of agreement to indicate the extent to which the following

statements have been applying to your petroleum Filling station by ticking your response

corresponding to the number in the scale given above in box against statement.

Str

on

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Agre

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Agre

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Not

sure

Dis

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1 2 3 4 5

1. The station has had cases of fraud within the

last six months

2. The station has identified fraud as a key factor

contributing to abnormal fuel losses

3. The station experience abnormal losses on

Super (PMS) above 0.5%

4. The station experience abnormal losses on

Diesel (AGO) above 0.5%

5. The station experience abnormal losses on

Kerosene (IK) above 0.5%

6 The station always record shortages after

offloading fuel

7 The station experiences shortages after selling

all the supplied fuel

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Any Other Information………………………………………………………………………………

……………………………………………………………………………………………………….

.

……………………………………………………………………………………………………….

.

……………………………………………………………………………………………………….

.

................................................................................................................................................

..

………………………………………………………………………………………………

..

………………………………………………………………………………………………

..

..……………………………………………………………………………………………

….

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1 2 3 4 5

8

The station relies on manual stock reconciliation

to detect likages from storage tank and pipe-

works

9 The dip stick accuracy level is plus or minus

50-100 liters

10 The station take dip reading at the time of shift

change as a method of continues inventory

monitoring

11 We escort fuel from the deport to the stations

all the time the station receives its supplies

12 Fuel is delivered to our station by the supplier

78

SECTION C:WHAT ARE THE CHALLENGES AGAINST OPERATIONAL RISK

IN THE PETROLEUM FILLING STATION

In the table below, tick appropriately. Using a scale of 1-5 tick the appropriate answer

from the alternatives, 1- Strongly Agree 2-Agree 3-Not Sure 4-Disagree 5- Strongly

Disagree

Please show your level of agreement to indicate the extent to which the following

statements have been applying your petroleum filling station by ticking your response

corresponding to the number in the scale given above in box against statement

Str

on

gly

Agre

e

Agre

e

Not

sure

Dis

agre

e

Str

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Dis

agre

e

1 2 3 4 5

1. Credit sales contribute cash-flow challenge to our

station.

2. Cash sales is a significant contributor to abnormal

losses in the station

3. The risk of adulteration of products (especially PMS

and AGO) is a major challenge to our station

4. The monthly price change by ERC contribute to an

increase in stock-out cost in the station

5. The monthly price change by ERC affect our price

margins

79

Any Other Information………………………………………………………………………………

……………………………………………………………………………………………………….

.

……………………………………………………………………………………………………….

.

……………………………………………………………………………………………………….

.

................................................................................................................................................

..

………………………………………………………………………………………………

Str

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1 2 3 4 5

6 Staff turn-over is a major challenge to risk

minimization in the station

7 Staff training is one of the major cost centre in the

station

8 Training cost is a limiting factor in efficient risk

management in the station

9 Credit sales is a key contributor abnormal losses for

our station

10 The amount cash on hand is a factor to abnormal

losses for the station

80

SECTION D . WHAT ARE THE GOOD PRACTICES ON OPERATIONAL

RISKS MANAGEMENT FOR PETROLEUM STATION?

In the table below, tick appropriately. Using a scale of 1-5 tick the appropriate answer

from the alternatives, 1- Strongly Agree 2-Agree 3-Not Sure 4-Disagree 5- Strongly

Disagree

Please show your level of agreement to indicate the extent to which the following

statements have been applying to your petroleum filling station by ticking your response

corresponding to the number in the scale given above in box against statement.

Str

on

gly

Agre

e

Agre

e

Not

sure

Dis

agre

e

Str

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Dis

agre

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1 2 3 4 5

1. In the station that the quantities of fuel delivered,

stored and dispensed are accurately monitored and

recorded on a daily basis.

2. The station review the loss/gain trends daily for

variances from the usual trend of the tank and for

any loss or gain exceeding acceptable levels based

on deliveries, sales for that day and seasonality.

3. The station trains staff to promptly identify

abnormal variance and on what action to be taken

4. The Station reviews risk assessment periodically

and follows up any significant changes.

5. The station maintains records of staff training and

keeps it as part of the safety management

documentation

81

Str

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Dis

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1 2 3 4 5

We carry out periodic testing for the presence of

water in the underground tanks to detect failure of

tank shell or pipe-work connection

6 The station is always looking out for anything that

has the potential to cause harm, in terms of human

injury, ill-health or damage to property.

7 The station always maintain minimal stock before

the monthly price change

8 The station transports its own fuel from the deport

9 The station provide adequate training and relevant

information for all employees

10 The general principles of risk assessment are

included in our operational policy manual and it is

available to both management and staff

11 The station has portable fire extinguishers, which

are serviced once a year

12 The station has emergency plan for minimization the

effect of emergency that may occur at any point of the

premises

13 We are compensated (by the oil company) on the loss

based balance of product held, when there is a

decrease in pricing by ERC

Any Other

Information………………………………………………………………………………………..

……………………………………………………………………………………………………….

.………………………………………………………………………………………………………

...……………………………………………………………………………………………………

……………………………………………………………………………………………………….