ERC signals high fuel costs as petrol, diesel prices drop

Petrol and diesel prices have dropped for five months in a row as energy regulator yesterday warned that fuel costs would start rising on a rebound of crude oil in global market.

Petrol, mainly used by private cars, is down Sh0.92 to Sh85.58 a litre in Nairobi while diesel, used to power trucks, buses, factories and machinery is down Sh2.18 to Sh65.70 a litre — signalling cheaper transport costs.

But kerosene, mainly used by poor homes for lighting and powering their cook stoves, increased Sh2.53 to Sh42.15 a litre.

The Energy Regulatory Commission (ERC) reckon that the prices of petroleum products will start rising on the back of crude costs, which is now retailing at $40 (Sh4,063) per barrel from a low $29 (Sh2,945.80) in January.

“There has been resurgence in the price of crude oil in the international market, with the price currently at $40 per barrel. This will influence future pricing of petroleum products locally,” the ERC says.

The energy regulator said the fuel to be consumed over the next month was based on crude at $33 (Sh3,352) per barrel.

This signals a price increase in the next review from mid-April in what would put pressure on inflation, which dropped to 6.85 per cent in February from 7.78 in January.

Petroleum prices have a big effect on inflation because they affect operation and production costs of manufacturing, agriculture and transport.

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

READ: Why Kenyans still pay more for fuel amid low oil prices

Kenya buys refined petroleum products after its sole refinery in Mombasa was closed in September 2013, denying the country the full benefits of the lower crude oil prices.

Consumer lobby groups have recently expressed disappointment high fuel costs despite a drop in global crude prices.

The ERC has, however, insisted that the import cost of refined petroleum varied from that of crude, hence the disparity.

Kenya imported refined petrol at $473 (Sh48,047) a tonne in February, down from $496 (Sh50,384) in January while that of kerosene increased to $352 (Sh35,756) a tonne from $321 (Sh32,607) a tonne.

The energy regulator says that the shilling appreciated by 0.51 per cent to Sh101.81 against the US dollar last month, making it less expensive to buy petroleum in the dollar-denominated global market.

Fuel attracts multiple taxes, accounting for about 37 per cent of what consumers pay for at the retail pump. Excise duty on petrol is Sh19.89 a litre while the levy on diesel is Sh10.3.

Kerosene, used by low-income homes for cooking and lighting, is zero-rated. Petrol and diesel also attract a road levy charge of Sh12 a litre that is not applied to kerosene.