IMF says Kenyan motorists enjoying better fuel price cuts
A petrol station attendant. A new report validates claims by the Energy Regulatory Commission that it has been passing on the full benefits of oil price cuts. PHOTO | FILE
What you need to know:
The International Monetary Fund (IMF) says that net oil importers, Kenya included, are substantially passing on the price fall in the domestic fuel supply chain, while net exporters have largely retained old prices.
Kenya is ranked in the top five countries with the largest pass-through at nearly 100 per cent alongside Mauritius, Senegal, Zambia and Malawi.
Kenyan motorists have benefited well from lower global crude oil prices compared to other sub-Sahara African (SSA) countries, an International Monetary Fund (IMF) report shows.
The IMF said in its SSA regional outlook for April 2015 that net oil importers, Kenya included, are substantially passing on the price fall in the domestic fuel supply chain, while net exporters have largely retained old prices.
Kenya is ranked in the top five countries with the largest pass-through at nearly 100 per cent alongside Mauritius, Senegal, Zambia and Malawi.
The IMF report measures the pass-through of prices along the supply chain to the final consumer by dividing the change of local prices against international prices, both in domestic currency.
Compared to Kenya, consumers in Tanzania and Uganda have enjoyed less reduction along the fuel supply chain at about 60 per cent and 20 per cent respectively according to the IMF data.
“The pass-through has been partial and almost entirely limited to oil importers…despite the fact that in sub-Saharan Africa, only about 35 per cent of countries allow automatic adjustment of retail prices, whereas the others set prices administratively,” said IMF in the report.
“Overall, the median pass-through was only 31 per cent between June 2014 and early 2015.”
The IMF report appears to back the Energy Regulatory Commission (ERC) which has maintained that consumers have received the full possible benefit of lower crude prices at the fuel pump.
The regulator has argued global oil prices account for 60 per cent of the local retail prices, with shipment costs, profit margins, taxes and other fixed charges accounting for the remaining 40 per cent.
The Consumer Federation of Kenya (Cofek) and Kenya Association of Manufacturers (KAM) had in March faulted the pricing formula, saying it favours the marketers more than consumers.
“The formula is anti-consumer since taxes and levies, supplier margins and distribution costs are a fixed cost and not a percentage. This essentially means these factors of fuel pricing do not change with reduction in international prices,” Cofek had said.
The current maximum allowed price for petrol in Nairobi is Sh89.35 per litre, diesel at Sh77.48 and kerosene at Sh57.21. These prices reflect declines of 23, 26 and 32 per cent respectively since the cost of crude oil started falling in June 2014. From Sh10,411 ($110), a barrel costs Sh6,152 ($65) today.
Data from the Tanzania energy regulator shows that at prevailing exchange rates, a litre of petrol in Dodoma is going at a maximum of Sh89, diesel at Sh86.50 and kerosene at Sh85.65, all representing a uniform 20 per cent reduction on June 2014 prices.
In Kampala, Uganda, a litre of petrol has fallen by nine per cent to Sh108.70, while diesel is lower by 17 per cent to retail at Sh88.30.
Landlocked Uganda, Burundi and Rwanda that are reliant on Mombasa and Dar es Salaam ports to import fuels generally tend to have higher fuel costs.
This is because oil for most part tends to be trucked by road with only a small part of the distance covered by pipeline. There are plans though to build a pipeline from Kenya to Rwanda through Uganda.
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