Cofek calls for end to ERC’s monthly petrol price fixing

The Energy Regulatory Commission (ERC) has been asked to end its monthly review of petroleum prices, which critics say have been captured by oil marketers and are being applied against the public interest.

The reviews, which were meant to shield consumers from cartel-like behaviour in the retail petroleum market, are now being used to block the public from enjoying the fruits of a competitive market, the Consumer Federation of Kenya (Cofek) said on Monday.

Cofek is backing up its position with a lawsuit that will seek the court’s interpretation of the constitutionality of the price controls it reckons are now being used to deny consumers full benefits of the recent plummeting of crude price.

“We are going to challenge the constitutionality of the ERC’s monthly setting of petroleum prices,” Cofek secretary-general Stephen Mutoro said.
The consumers’ lobby was reacting to the ERC’s Saturday decision to raise petroleum prices for the first time in six months, insisting that Kenyans are yet to fully enjoy the benefits of the recent decline in global crude prices.

READ: Kenyans to pay more in new fuel price review by ERC

Cofek has already petitioned the National Assembly to withdraw ERC’s powers over petroleum prices, which it insists should be left to the market forces of demand and supply.

To stop the price controls, the Ministry of Energy will have to phase out the open tender system (OTS) that awards one oil marketer the right to import petroleum in bulk every month on behalf of the entire industry.

“The open tender system has run its course. It should be abolished and each marketer allowed to import its products and to compete for customers in the open market,” said Mr Mutoro.

But ERC director for petroleum Linus Gitonga dismissed claims of possible collusion with the marketers, saying that the agency’s conduct is above board.

READ: Consumer lobby faults regulator over fuel prices

Mr Gitonga insisted that Kenyan consumers had enjoyed the full benefits of the recent oil price slump considering the 45-day lag between the placing of supply orders and actual delivery of consignments.

“The benefits of the recent global slump in crude prices, which have now rebounded, have for now been exhausted,” said Mr Gitonga.

But critics argued that the key objective of OTS and price controls in averting cartel-like behaviour that benefited from hoarding of stock to fix prices had long been achieved and that the market is now ready to self-regulate.

There are currently 88 oil marketing companies up from 11 in 2010 when the energy regulator started fixing prices to protect consumers from massive price fluctuations that were often out of sync with the global market prices.

On Monday, the Kenya Association of Manufacturers (KAM) supported the push for removal of price controls saying the instrument was not serving consumer interests.

“It is time to get rid of the price controls and go back to the competitive model,” said Betty Maina, the chief executive of KAM.

Industrialists, who had started cutting the prices of their goods because of falling energy prices, said if the change of fortunes persisted, it would mean a reversal of the pricing.

This would likely spoil the party for households who got some relief early this month after Bidco Oil cut prices of edible oils and soap citing lower energy costs. Cement firms have also reduced ex-factory prices, causing excitement in the property market.

Lower prices of diesel, which is critical in production of industrial goods, transport and powering agricultural machinery, have in recent months helped keep inflation stable at about six per cent since December 2014.

The reversal of petroleum price drops could also upset the pace of economic activity, having been a major component in the World Bank’s recent projection of robust growth of above six per cent.

Higher priced oil also portends a significant ballooning of Kenya’s import bill that could worsen the country’s current account.

The Motorists Association of Kenya however supported the price capping insisting that it has helped cushion consumers from exploitation by cash-hungry marketers.

The lobby was at the forefront of pushing for price controls five years ago following periods of prolonged shortages and price spikes in the then unregulated market.

Peter Murima, the association’s chairman, however faulted the ERC for what he termed as an apparent lack of goodwill to ensure consumers benefit as much from the low crude prices as oil firms.

“We are starting to rethink the idea of having the controls because lately ERC seems to be favouring oil marketers,” said Mr Murima adding that the drops at the fuel pump do not reflect the global slump.

Cofek said the petroleum market had become a “formal cartel” consisting of the ERC, the Ministry of Energy and marketers with no representation of consumers.

“The ERC is operating in breach of Section 94 of the Consumer Protection Act 2012, which requires consumer representation on all regulatory bodies,” said Mr Mutoro.

The World Bank has also criticised ERC’s price caps for being higher compared to global trends. The Bretton Woods institution in a recent report indicated that local fuel prices were Sh15 higher than expected.

The ERC on Saturday increased the price of petrol by Sh4.75 a litre to Sh89.46, diesel by Sh0.68 to Sh76.20 and kerosene by Sh3.35 to Sh55.75 in Nairobi.