Tough times for consumers as petrol price hits 26-month high

Petroleum prices have shot to a 26-month high, setting the economy up for a general rise in manufacturing and transport costs that will be ultimately borne by consumers.

The cost of diesel, which is mainly used to power trucks, buses, farm and industrial machinery, has risen by the biggest margin of Sh5.03 to Sh89.26 a litre in Nairobi – taking the pump price to its highest level since December 2014.

Petrol, mostly consumed by private cars, will from today cost Nairobi motorists Sh4.26 more at Sh100.27 a litre, marking the first time it has crossed the Sh100-mark in the past 17 months. The prices will be in place until mid-next month when they will be due for a review again.

The higher costs are set to further erode the purchasing power of motorists, push up operating costs for industrialists and transporters, who could then pass the additional costs on to consumers, triggering a wave of inflation.

The Energy Regulatory Commission (ERC), which adjusts fuel prices every month, said the new prices were driven by the fact that the consignment to be consumed this month was bought after global crude oil prices jumped by 20 per cent.

“There is a correlation between the change in crude oil prices and refined products prices, but this is not linear,” said ERC acting director-general Pavel Oimeke.

“For instance, prices of refined petroleum products in the world market in the same period rose by 14 per cent to 17 per cent,” he added.

Kenya 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 placement of import supply orders and actual delivery of consignments at the Mombasa port, meaning local prices do not immediately reflect global market trends.

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The ERC sets the prices of petroleum products every month in line with global oil prices, foreign exchange rates and tax changes.

Motorists have enjoyed lower prices of below Sh100 a litre for nearly two years following the fall in global crude prices from $115 a barrel (159 litres) in mid-2014 to below $30 a barrel early last year before recovering to the current $55 a barrel.

The Treasury’s increment of road maintenance levy by Sh6 to Sh18 per litre of petrol and diesel in July last year has pushed fuel prices to higher levels despite the relatively lower crude prices compared to three years ago.
The roads levy is designed to make motorists bear the burden of maintaining roads.

The United Arab Emirates (UAE) last year outpaced India to become Kenya’s largest supplier of petroleum, with Saudi Arabia coming in third, followed by Bahrain and Oman. Kerosene, which is used by poor households for cooking and lighting, is up Sh3.75 to Sh67.19 a litre in Nairobi in the latest review.

Kenya consumes about 126 million litres of petrol per month, according to the energy regulator, meaning the Sh4.26 increment at the pump translates to consumers paying Sh536 million more.

The country consumes 203 million litres of diesel, meaning the extra Sh5.03 a litre will set the motorists’ purchasing power back by Sh1 billion.

The costlier fuel prices put Kenya on a rough economic path, coming at a time when the economy has taken a hit from a raging drought that has pushed up prices of basic goods like food.

Residents of Nairobi and other major towns are grappling with a painful bout of water rationing that has forced many to turn to expensive water vendors.

Besides rising crude prices, a weakening of the shilling has also helped push up pump prices as more units of the local currency is needed to fetch the US dollar – the currency that is used in global transactions.

The shilling shed 1.44 per cent to trade at Sh103.88 to the greenback in the review period.

The weaker shilling has also seen the forex levy in power bills rise to a 15-month high of Sh1.28 per kilowatt hour (kWh) of power consumed this month, piling pressure on homes.

The rally in the fuel and utility prices is expected to put upward pressure on Kenya’s economy where inflation rate rose to 11-month high of 6.99 per cent last month.

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

Mombasa consumers, therefore, enjoy the lowest retail prices at Sh96.85 a litre for petrol and Sh85.87 for diesel.

Petrol is most expensive in the northeastern town of Wajir at Sh108.53 a litre while diesel costs Sh97.5.

Taxes and levies account for more than 40 per cent of the cost of each litre of petroleum at the pump (currently standing at Sh39.07 out of the Sh100.27 in Nairobi), highlighting the extent of its burden to consumers.

The taxes come in the form of excise duty (Sh19.90 per litre of petrol and Sh10.31 for diesel), road levy (Sh18), petroleum development levy (Sh0.40), petroleum regulatory levy (Sh0.12) and railway development levy at Sh0.65 per litre of petrol.

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.