Poor Kenyans lose out in the regulated retail oil market

The lowest paid Kenyans have emerged the biggest losers in the newly regulated oil market as fuel dealers increased Kerosene and diesel prices to compensate for losses arising from low cap of motor fuel.

Oil marketers have increased the price of a litre of diesel by Sh2 and that of kerosene by up to Sh5 as they lowered the motor petrol by Sh4.50 a litre in compliance with the government price list that will run until January.

While easing the burden on middle class Kenyans, the rise in Kerosene prices will eat deep into household budgets of the low earners who rely on the commodity for lighting and cooking while expensive diesel is unlikely to ease pressure on the runway transport costs .

More money

“Marketers are happier now as they will make more money. Kerosene went up by Sh6 and diesel is up by Sh2 per litre,” said an executive at Gapco Oil, who requested not to be named.

OiLibya expressed similar comments, arguing that diesel prices in the wholesale market had risen from Sh76.50 a litre to Sh84.50 following the government directive, setting the stage for a fresh review at the retail pump stations.

The price movements are set to raise questions over the effectiveness of the price control regime in curbing the price volatility of petroleum products that has eroded Kenya’s competitiveness in regional markets and wrecked household budgets, especially of poor homes.

The Ministry of Energy announced Tuesday that that a litre of diesel will retail at a maximum price of Sh87.45 until January 14—a price that was higher than the previous rate of about Sh85 at pump stations outside the Nairobi’s Central Business District.

A spot-check by the Business Daily showed that most stations have already increased their diesel prices to Sh87 and OilLibya reckon that the impact of the elevated wholesale prices will be felt at the pump in coming days.

It set maximum Kerosene prices at Sh75.83 a litre in Nairobi and Sh78.04 in Kisumu up from about Sh70. Oil dealers have started adjusting their prices upwards with some stations in Nairobi selling the product at Sh75.

But petrol prices that had risen to Sh100 in Nairobi have now receded to Sh94.30 following the government directive.

“We have followed them to the dot,” said David Ohana, the general manager for KenolKobil said on Thursday of the government price list.

Energy analysts say that the government price schedule gives room for the marketers to compensate for the losses in the petrol segment with increments in the diesel and kerosene segment as well as upcountry service stations.

Diesel accounts for about 40 per cent of the petrol products sold in Kenya, according the Petroleum Institute for East Africa (PIEA)—a signal that the price increments will be enough to compensate for losses in the motor petrol that accounts for 15 per cent of the sold products.

Kerosene accounts for about 7.9 per cent of the products.

“Nairobi consumers who have always been used to balance losses in Western Kenya markets are gainers,” said George Wachira, a director at Petroleum Focus Consultants—a local energy consultancy firm.

Under the new pricing structure, upcountry prices will be influenced by their distance from Mombasa—which hosts the country’s petroleum refinery and port—with those furthest from the port city such as Kisumu and Eldoret bearing the heaviest price burden.

For instance, a litre of regular petrol will retail at Sh91.08 in Mombasa compared to Sh96.19 and Sh96.25 in Eldoret and Kisumu respectively.

This is a departure from the past where petrol prices have been on demand levels with Nairobi facing steeper prices compared to Western Kenya.

The regional prices is also set to re-ignite the class debate as a huge chunk of Kenya’s middle class resides in the capital yet they face a less price burden to western and northern Kenya where prices are steepest.

The expensive fuel and cooking gas prices helped reverse the downward inflation trend as the cost of living measure has been falling from July on reduced food and mobile airtime prices—that saw the month on month inflation fall from 3.88 per cent in May to the 3.09 per cent in October.

Inflation stood at 3.84 per cent in November.

Pump prices have risen from Sh85.50 a litre in Nairobi in June as dealers adjusted the prices upwards to match the rise in global crude prices, high freight charges, a weak local currency and inefficiencies in the supply chain.

Cooking gas — which has been excluded from the state controls-- has risen from Sh2, 000 to Sh2, 900 for 13 kg container.

This has seen motorists and manufacturers dig deeper into their pockets to meet their high fuel price with the low income and the middle class paying more for lighting kerosene and cooking gas respectively.

The new pricing schedule is expected to drastically alter the landscape of Kenya’s oil market and place the country in the same bracket as South Africa and Tanzania where price controls have been place since the boom in commodity prices.

In Kenya, price controls in the petroleum market were abolished in 1994, and past attempts to reintroduce them have been unsuccessful.