Players in the energy sector have cited lack of sufficient storage capacity for fuel and LPG products as being the main drivers of the frequent supply shortages.
A 13kg cylinder is now retailing at an average of Sh4,200 at some outlets, up from Sh2,200 in January amid frequent stock-outs from petrol stations.
But ERC says that the Energy Act does not give powers to regulate the commodity as yet.
Petroleum prices have dropped for the first time in seven months, offering consumers critical relief during the festive season that begins next week.
Energy sector regulator ERC said the drop in prices by up Sh5.07 per litre — the first since the slight dip in May when Treasury cut excise duty on petroleum — came from a recent strengthening of the shilling and last month’s marginal increase in crude oil prices.
The shilling has clawed back more than 25 per cent of its value in the past four weeks from a low of 107 to the dollar riding on the Central Bank’s aggressive tightening of monetary policy to contain runaway inflation and exchange rate turbulence.
“In the last one month, the shilling has strengthened relative to the dollar and this has impacted positively on local pump prices,” Kaburu Mwirichia, the director-general of the Energy Regulatory Commission, said in yesterday’s monthly review.
“The mean exchange rate improved to Sh93.64 per dollar in November ,from 101.96 in the previous month, a change equivalent to 8.2 per cent,” he said, adding that the free on board price for Murban crude oil lifted in November stood at $114.35 per barrel, an increase of five per cent from $108.95 in October.
The two factors would offer consumers a Sh5.07 per litre drop in the cost of refined fuel products beginning this morning. Diesel now costs Sh3.33 less per litre while kerosene price has dropped by Sh4.13 per litre.
The new pump prices are being seen as the clearest indicator yet that the inflation pressure which has risen steadily since the beginning of the year to peak at 19.72 per cent in November will ease in the coming months as key sectors of the economy benefit from the low petroleum pricing dividend.
Low petroleum prices are expected to have a direct impact on household energy budgets, cut the cost of transport and significantly bring down the fuel cost segment of electricity bills, offering relief to industrial producers of consumer goods.
Additional relief on the cost of energy is expected to come from an increase in the amount of cheaper hydro-electricity following heavy rains in the past two weeks.
Cheap
Eddie Njoroge, the managing director of electricity producer KenGen, last week announced an impending water overflow at the Seven Forks Dam, Kenya’s leading source of hydro-power.
At full capacity, hydro-electricity dams are expected to raise the amount of cheap power to at least 67 per cent from 44 per cent in September.
Global commodity traders expect international prices of crude and refined products to stabilise or decline in coming months, citing depressed demand from troubled Euro zone and the United States.
The new prices that come into force just in time for the festive season will be in effect until January 14 when the next review of retail prices is due.
A litre of petrol in Nairobi will now cost Sh119.06, diesel Sh110.98 and kerosene Sh90.74.
The cost of super petrol, diesel and kerosene rose by up to 38.1 per cent, 39.7 per cent and 35.4 per cent respectively in the year to October 2011, adding impetus to inflationary pressure.
Oil industry executives promised additional stability cuts at the pump into the New Year should the current stability in crude prices and the exchange rate hold.
“We cannot anticipate movements in oil prices because petroleum is a highly volatile market that is subject to many factors,” said Christian Alage, the managing director for Addax Petroleum.
“If crude prices drop as many analysts have predicted, then we should be able to pass on the benefits to consumers.”
Industry executives welcomed the new prices as reflective of the current cost of supply.
The mean rate is based on the average buying by the three big financiers of oil imports KCB, Citi Bank and Barclays Bank. The banks’ charges are based on date of discharge of the cargo rather than the bill of landing or the rate applicable during loading at the source.
Refined
Under the ERC’s pricing formula, the monthly average price is applicable for imported petroleum while locally refined products attract a two months average.
Oil marketers said the new formula had improved the pricing to reflect the cost of supply.
Most consumers, however, maintained that the drop in prices did not go far enough to reflect recent developments in the global crude market.
“The cuts are unacceptable. There is no rationale for it appears the Government is not keen to offer consumers tangible reprieve,” said Stephen Mutoro, chief executive for the Consumer Federation of Kenya (Cofek).
“We were expecting not less than Sh10 per litre because of the drop in the cost of crude, forex and lower interest rates,” added the official whose organisation has moved to courts to challenge implementation of the formula. Last week energy Permanent Secretary Patrick Nyoike said pump prices could drop by up to Sh5 per litre from this week in a move aimed at reducing pressure on consumers currently saddled by the high cost of living with inflation peaking at 19 per cent.
‘The average landed cost of imported super petrol decreased by 1per cent , from 1069.44 per metric tonne in October to $1059.18 per tonne in November.
Over the same period, the average landed cost of imported diesel decreased by 1.4per cent from $982.88 per tonne to $969.10 per tonne , while the average landed cost of imported kerosene increased by 1.5 per cent from $1031.61 per tonne in October to $1046.97 per tonne in November.
But it is the frequent shortages of fuel and LPG that the country has been experiencing which have led to soaring prices for the commodities with the price of LPG nearly doubling in the past nine months. Players in the energy sector have cited lack of sufficient storage capacity for fuel and LPG products as being the main drivers of the frequent supply shortages.
A 13kg cylinder is now retailing at an average of Sh4,200 at some outlets, up from Sh2,200 in January amid frequent stock-outs from petrol stations.
But ERC says that the Energy Act does not give powers to regulate the commodity as yet.
