ERC cuts fuel prices for fourth month in a row

The Energy Regulatory Commission (ERC) on Sunday cut petroleum prices for the fourth month in a row even as consumers complained that the drop has not reflected a recent plummeting of global crude prices.

The maximum price of super petrol in Nairobi has dropped by Sh4.79 per litre to Sh102.01 while motorists will buy diesel at a price of Sh90.85 per litre or a Sh3.67 drop.

The price of kerosene, which is mainly used by low-income households for lighting and cooking, fell by Sh4.94 per litre to Sh71.37.

Energy sector analysts have in recent months expressed dissatisfaction with the margins by which the ERC has been cutting prices, saying they do not reflect global prices.

“We expect to see further drastic price declines in coming two months as deliveries are taken in at lower prices,” analysts from Standard Investment Bank said in a recent market outlook report.

They argue that despite crude prices declining 40 per cent in the past six months, domestic prices have only dropped by narrow margins of between 6.9 per cent and 9.7 per cent.

This comes as global crude prices continued to fall due to a supply glut and a decline in global demand that has been sapped by a slow growth. Crude prices dropped to a five-year low of $63 a barrel on Friday.

The analysts reckon that the shilling shed 3.3 per cent to the dollar in the six month period, a margin insufficient to neutralise the huge drops in crude prices.

The price of a litre of petrol has dropped by Sh12.61 since June, diesel by Sh13.96 and kerosene by Sh11.76.

The ERC on Sunday, however, attempted to explain the marginal drop in local pump prices, arguing that prices of refined oil remain much higher than crude.

Kenya now imports refined fuel for all its needs, following the closure of the ageing Kenya Petroleum Refineries Ltd (KPRL) plant in September last year.

READ: Cheap crude dims Kenya oil exploration outlook

The ERC says that the cost of imported super petrol decreased by 8.18 per cent last month, that of diesel by 5.30 per cent and kerosene by 11.32 per cent.

ERC director for petroleum Linus Gitonga said global oil prices accounted for 60 per cent of the local retail prices. Shipment, profit margins, taxes and other fixed charges account for the remaining 40 per cent.

Mr Gitonga further reckons that since the ERC revises prices once every month, there is always a time-lag before a drop in global prices reflects in the pump price.

“We always have a lag of about 45 days and hence price changes internationally are only felt about 45 days later,” he said, adding that the latest review reflects the price of oil in October.

The lag is also occasioned by the open tender system where an oil marketer is given the rights to import oil in bulk every month, a move meant to attract huge discounts.

Mr Gitonga also cited a weaker shilling to the greenback as having eroded gains accruing from lower global crude prices – a claim that is clearly not supported the marginal changes in the exchange rate.

Falling prices at the local pump has helped ease inflation in Kenya’s economy, which depends heavily on diesel for transport, power generation and agriculture.

Lower diesel prices help to push down the cost of producing and distributing goods given that it is the main fuel that is used to power trucks and machinery in the agricultural sector.

Aside from boosting economic activity, low priced petroleum also reduces the rate of inflation when the costs are passed on to consumers in form of lower prices of commodities and food.

Kenya’s inflation eased to 6.09 per cent last month from a high of 8.36 per cent in August, helped by falling electricity, food and fuel prices.

Retailers cut the price of a two-kilogramme packet of unga, a staple meal in Kenya, to Sh98 from Sh105 last month and Sh113 in September, a relief to most households.

Fuel attracts multiple charges such as road maintenance levy, excise duty and railway development levy.

Excise duty on petrol is Sh19.89 a litre while the levy on diesel is Sh8.24. The two also attract a road levy charge of Sh9 a litre that is not applied on kerosene.

Added to the fuel charges are profit margins to oil marketers. The ERC has set a profit margin for oil marketers at Sh7 a litre wholesale and Sh3.89 retail.