State shelves fuel tax to halt pump price surge

The government has made a rare U-turn and suspended a new fuel inspection fee that had prompted oil marketers to increase prices marginally — giving motorists a reprieve in the wake of surging costs.

The marketers increased pump prices by between Sh0.40 and Sh1.20 per litre of fuel following the introduction of the new fees on March 1.

This came after the government awarded an Indian firm Geo Chem Middle East a contract to inspect imported fuel cargo, which had the potential to increase inspection charges by Sh2.4 billion yearly up from charge of Sh7 million.

The industrialisation ministry yesterday made a climb down, citing the impact of the new levy on pump prices.

“The government noted with concern that following the outsourcing of the inspection of petroleum by Kebs to Geo- Chem at the port of Mombasa, importers have had to incur more than was the case in the past,” said Mr John Lonyangapuo, the permanent secretary in the ministry.

Fuel shortage

“All the money already paid for inspection by oil industry players in the country since 1st of March this year will be refunded,” he added.

The government through the Kenya Bureau of Standards (KEBS) is due to refund about Sh100 million collected from the marketers—a pointer that the marketers could review their pricing downwards.

This new levy had led to a stand-off in the oil market, pitting the marketers against Kebs, with shortages of fuel being reported at pump stations and at the inland airport Wilson Airport—forcing the industrialisation ministry to step in.

The oil marketers maintained that the government-backed inspection was a duplication of existing inspections since the dealers had their own examination contracts in addition to quality checks by the Kenya Petroleum Refineries Ltd has also quality checks.

The award of the contract to Geo Chem was also shrouded in controversy with claims that it breached procurement regulations.

“The procurement of Geochem was hurriedly launched and implemented with no stake holder consultation at any stage. A due procurement process was not followed,” said an oil market who requested not to be named fearing reprisals from the government.

But oil marketers reckon that the pricing relief at the pump station is short-lived, adding that petrol prices are set to soar past Sh90 a litre as marketers factor the rising crude prices on the local pump prices.

This will be the highest price since December 2008 and a rise of 12 per cent since December—a move that will pile pressure on inflation on the back of increased transport and other goods and services that rely on fuel as a factor of production.

Experts and oil marketers blame the continuing rise in prices at the local pumps on the surging crude prices, driven by optimism over the pace of global economic recovery and increased speculation on the commodity by commodity traders.

On Monday, crude prices stood at $82.70 a barrel and oil marketers the National Oil Corporation (NOCK) and Kenya Shell said the price was yet to be accounted on the current prices.

Mr Mwendia Nyaga, the managing director of Nock, reckons that the current pump prices are based on fuel imported in February at $74.20.

“The impact on refined imports will be immediate. Products that are being loaded now will cost Sh4-5 more for petrol, diesel, Kerosene,” added Mr Nyaga.

Same product

A spot-check by the Business Daily showed that unleaded fuel was retailing at Sh87 a litre within the Central Business District (CBD) although it was still possible to find the same product in some branded stations selling at Sh83 outside the city centre.

This is clear signal that consumers are set for expensive fuel in the coming days.

The effects of a rise in petroleum products could spread throughout Kenya’s economy.

Households will have to part with more money to meet their fuel expenses, a move that will see families left with less to spend on other products such as airtime and leisure.

This is crucial given that most producers have been struggling to push their products in the market place due to the country’s soft economy.

Producers themselves could be pushed to increase their product prices that are often linked to the cost of petrol.

There is also the blow for public transport users as operators are expected to increase their fares as they pass on the additional expenses to consumers.

As a result, energy costs are set to join expensive food as drivers to the cost of living or inflation.