Roads levy pushes petroleum prices to eleven-month high

Petroleum prices rose to an 11-month high beginning Friday morning buoyed by the coming into effect of the Sh6 road maintenance levy that Treasury secretary Henry Rotich added to the product cost in his June budget.

The cost of diesel, which is mainly used to power trucks, buses and industrial machinery, increased by the highest margin of Sh9.53 to Sh83.24 a litre in Nairobi — the highest level since August last year.

Petrol, mostly consumed by private cars, is now costing motorists Sh6.76 more at Sh92.93 a litre, representing the highest price level since November last year.

“In this month’s review, the commission has factored in additional Sh6 per litre road maintenance levy for both super petrol and diesel in line with the road maintenance levy fund (imposition of levy) (amendment) order, 2016,” the Energy Regulatory Commission (ERC) said in a statement.

The ERC, which is the energy sector regulator, sets the prices of petroleum products every month in line with global crude oil prices and fiscal policy changes.

Mr Rotich on June 8 increased the road maintenance levy from Sh12 to Sh18 per litre of petrol and diesel, but that was not reflected in last month’s adjustment of pump prices.

The roads levy is designed to make motorists bear the burden of maintaining roads.

The ERC’s latest price-setting round also affected kerosene, which is mainly used for lighting and cooking in low income homes – pushing it up Sh3.41 to Sh61.45 a litre.

The Treasury last month also introduced a Sh7.20 excise duty per litre of kerosene, which took effect immediately, piling pressure on the budgets of low income homes.

The tax was introduced to stop dealers from mixing low-priced kerosene with diesel for sale to unsuspecting motorists.

READ: Kerosene tax increase looms as MPs fight petrol dilution

Fuel prices have a direct bearing on inflation that rose to 5.8 per cent last month from five per cent a month earlier, meaning the general rise in pump prices could exert additional pressure on the cost of consumer goods across the board.

Higher fuel prices often pile pressure on manufacturers and large-scale farmers, who use diesel to run their machinery, necessitating the passing on of the additional costs to consumers through higher retail prices.

Rising petrol and diesel prices also push up transport costs and ultimately the cost of goods in the market countrywide.

Taxes account for more than 40 per cent the cost of each litre of petroleum at the pump (currently standing at Sh39 out of the Sh92.93 in Nairobi), highlighting the extent of its burden to consumers.

The taxes come in the form of excise duty (Sh19.89), road levy (Sh18) and petroleum development levy (Sh0.40), adding up to 42 per cent of pump prices.

Petroleum traders then add their profit margins onto these costs – at the rate of Sh7 a litre for wholesale and Sh3.89 for retail – after factoring in distribution costs at the rate of Sh4 a litre.

Petroleum prices vary across Kenya mainly due to transport costs that reflect how far a location is from Mombasa port where the imported consignments land and are stored.

Mombasa consumers therefore enjoy the lowest retail prices at Sh89.53 a litre for petrol and Sh79.86 for diesel. Petrol is most expensive in the northeastern town of Wajir at Sh101.18 a litre.

The ERC said that the price increases were partly driven by higher global crude oil prices that have been rebounding in recent months.

Kenya now relies entirely on imported petroleum products after it shut down the Mombasa-based refinery in September 2013.

There is a lag of between 30 and 45 days between the placing of import supply orders and actual delivery of consignments at the Mombasa port, meaning local prices do not immediately reflect global market trends, but are at least one month late.

Petrol import costs rose three per cent in the review period, while that of diesel rose 11 per cent. The current petroleum stocks were bought in May when crude prices stood at $47.35 a barrel, up from $42 a month earlier. A barrel is equivalent of 159 litres of petroleum.