Fuel prices set to increase in monthly review

Prices of petroleum products are expected to rise to the highest level this year with Tuesday’s review that comes in the wake of a steep drop in the shilling’s value against the US dollar.

The Energy Regulatory Commission (ERC) is expected to announce the new prices Tuesday afternoon and analysts expect the cost of a litre of Super petrol to touch Sh100 in Nairobi, which accounts for nearly 60 per cent of the national consumption.

This month’s review does not, however, include the Sh3 roads maintenance levy that Treasury secretary Henry Rotich added to a litre of petrol or diesel in his budget.

ERC said the levy could not be included in the price reviews because the Ministry of Transport is yet to publish a legal notice on the same.

Higher cost of petroleum in an environment of high interest rates is expected to spoil the party for motorists and further slow down economic activity in the remaining part of the year.

Petrol has been retailing at Sh97.28 a litre in Nairobi since mid-last month’s review, having steadily risen from Sh84.71 per litre in February when it touched the lowest point in five years.

“There was a slight drop in the global crude prices in the period (of sourcing oil consignment). But the weakening of the shilling has wiped out the benefits,” ERC senior manager of petroleum Edward Kinyua said.

The ERC has in the past said that there is always a 45-day lag between the placing of supply orders and actual delivery of petroleum products at the Mombasa port, making reviews a reflection of what happened of that period.

If factored into retail prices, the roads levy increment — contained in the 2015/16 budget statement — would see motorists pay Sh12 per litre of petroleum.

The ERC has in the past months attributed the petroleum price increases to the crude oil price recovery since April and the plummeting of the Kenyan currency against the dollar.

The Kenya Roads Board, which manages the roads maintenance levy, said acting Transport secretary James Macharia is expected to publish a legal notice sanctioning the increment.

“The additional Sh3 is subject to a legal notice to be gazetted and signed by the Transport minister,” the board’s executive director, Jacob Ruwa, said. “It will take effect either on a date stipulated in the notice or on the date the notice is published.”

READ: Fuel prices rise again, more pain at the pump ahead

The shilling has in recent months traded at levels last seen three years ago against the dollar, raising the prices of a wide range of imported consumer and capital goods.

The Kenyan currency hit the Sh100 mark against the greenback last week for the first time since October 2011, prompting the Central Bank of Kenya to increase the policy rate by 1.5 percentage points to 11.5 per cent and setting the stage for a general increase in commercial bank lending rates.

The increase came a month after the bank had raised the rate by a similar margin in June. The CBK hopes that high cost of credit could slow down consumption of imported goods, helping reduce the current account deficit (difference between imports and exports) even as it cools down economic activity.

The shilling has been under pressure due to falling revenues from tourism and horticulture — the key foreign exchange earners — even as the import bill has continued to rise.

Petroleum products play a central role in the economy. Any price movement is transmitted to nearly all sectors of the economy, including transport, manufacturing and agriculture causing a general rise in the cost of goods and services.

A number of industrialists had in February cut the prices of their goods citing the fall in energy costs, but a sustained increase in the price of diesel, which powers most factories, is expected to reverse that trend as producers pass on costs to consumers.

A litre of diesel has been retailing at Sh83.31 in the Kenyan capital since mid-last month compared to Sh75.52 in February.

Inflation rose to 7.03 per cent in June largely driven by a rally in fuel prices from a low of 5.53 per cent in January.

A weak shilling, which was Monday quoted at a new low of Sh101.84, has also pushed the forex levy in power bills to a 19-month high of Sh0.89 per unit in July, setting homes up to paying larger bills.

Global crude prices have swung between $55 and $65 a barrel since the beginning of the year having dropped from a high of $115 in June to a low of $46 in December before starting to rise.