High financing costs to push up petrol prices

• The “cost of credit” surcharge will be introduced during this month’s retail price review for kerosene, diesel and petrol with a possibility of marginally pushing up prices.
• The new prices are expected to be announced Friday to take effect from midnight Saturday.
• The new charge brings to Sh10 the overall margin enjoyed by fuel marketers while cover for financing rises to Sh1.00. Energy minister Kiraitu Murungi gazetted the surcharge last week.
• ERC is planning a study on determining the maximum selling prices for the controlled products after listed oil marketers reported poor results for the first half of year.

The Energy Regulatory Commission (ERC) has increased the margins for oil companies by 38 cents a litre to cater for higher financing costs.

The “cost of credit” surcharge will be introduced during this month’s retail price review for kerosene, diesel and petrol with a possibility of marginally pushing up prices.

“We keep reviewing the formula and market dynamics to fully compensate the investor while protecting the consumer,” said a top official at ERC.

The new prices are expected to be announced Friday to take effect from midnight Saturday.

The new charge brings to Sh10 the overall margin enjoyed by fuel marketers while cover for financing rises to Sh1.00. Energy minister Kiraitu Murungi gazetted the surcharge last week.

Marketers started this week to lift products sold by the Kenya Petroleum Refineries (KPRL) under the merchant refining arrangement.

Previously the refinery was run on a protected contract model where marketers were supposed to process a certain volume of their products at the KPRL based on their market share.

The review is a response to the industry that has been agitating for higher margins on the basis of double-digit inflation in the first half of the year, the surge in bank rates until last week and the weakening of shilling last year.

Marketers, however, insist the new margin still does not match the cost of supplies in view of recent increases in crude prices.

“The addition factors only the exchange rate which does not cater for the current high cost of financing products. The formula is not enough to break even because of high cost of finance in a falling market,” OiLibya managing director Rida Elamir said.

The actual cost of crude, they said, would be reflected better through daily monitoring of foreign exchange rates and crude prices instead of the bimonthly mean used for crude oil and 30-day mean for refined products.

“If the market is falling, it does not give enough for the current cost of financing products,” he told the Business Daily on telephone.

Addax Kenya managing director Christian Callade said inflation should be considered in the formula because the price caps limit the return on investment.
International crude oil prices are tending up while the shilling has stabilised around Sh84 to the dollar.

Last week, the Central Bank of Kenya dropped the distress rate from 16 per cent to 13 per cent, portending the easing of financing costs in the mid-term.

The mean rate is based on the average buying rate by the three big financiers of oil imports KCB, Citi Bank and Barclays Bank.