Levy increase set to push up petroleum prices next month

The cost of petroleum is expected to rise sharply beginning mid-August when the energy sector regulator, the ERC, is expected to add Sh6 roads maintenance levy on every litre of petrol sold at the pump.

At Sh6 per litre of petrol, the roads maintenance levy will be double the Sh3 per litre increment that Treasury secretary Henry Rotich announced in his June budget statement.

The Energy Regulatory Commission (ERC) said the double charge is to cover for the late application of the tax whose effective date Transport minister James Macharia gazetted last week and backdated to July 1.

“We will have the Sh3 plus the recovery on cargo offloaded between July 1 and 15. I don’t want to speculate but this will definitely increase pump prices,” ERC’s senior manager of petroleum Edward Kinyua said.

The Sh6 charge will last a month to recoup the revenues missed since the beginning of the month and will then revert to Sh3 per litre in mid-September.

“We can only effect it in the next pricing. We are allowed to recover the funds through backdating,” Mr Kinyua said.

The ERC did not include the higher roads levy in this month’s review – to the relief of motorists – because the Ministry of Transport had not published a legal notice sanctioning the charges.

Kenya imports refined petroleum every month through the open tender system where one oil marketer buys in bulk to supply the rest.

The levy increase, coupled with a weakening shilling against the US dollar, is set to push up petroleum prices by the largest margin in years – piling inflationary pressure on motorists and increasing the cost of transport in the economy.

The additional Sh3 pushes the roads levy to Sh12 per litre.

With premium petroleum is currently priced at Sh98.59 per litre in Nairobi and adding Sh6 is expected to take the pump price to more than Sh103 per litre – the highest level since the global plummeting of crude prices at the beginning of the year.

Premium petroleum was last month priced at Sh97.28 having risen from Sh84.71 in February and is expected to continue rising with the ongoing exchange rate turbulence.

READ: Road levy set to push petrol price past Sh100 a litre

The ERC made a similar move in August 2013 when it loaded a double charge for the 1.5 per cent rail development levy on pump prices at once to compensate oil marketers who had paid the tax to Kenya Revenue Authority (KRA) starting July 1 but was not captured in the ERC’s monthly fuel price review on July 14 of that year.

The Consumer Federation of Kenya (Cofek) faulted the double charge, arguing that the payment should be staggered over a period of time to reduce its impact on the economy.

“This will surely hurt consumers. Backdating is not an issue but it should have been staggered over at least two months” said Cofek secretary-general Stephen Mutoro.

Kenyans are already facing the prospect of higher interest rates on loans after the Central Bank hiked its policy rate by three percentage points to 11.5 per cent in the past two months to stem the shilling’s slide and arrest inflation.

High fuel prices are transmitted to nearly all sectors of the economy, including transport, manufacturing and agriculture causing a general rise in the cost of goods and services – meaning consumers should prepare for higher inflation pressure in coming months.

Inflation rose to 7.03 per cent in June largely driven by a rally in fuel prices from a low of 5.53 per cent in January.

Mr Kinyua said the ERC will liaise with the Kenya Revenue Authority (KRA) and oil marketers to establish the amount of petrol and diesel offloaded at the Mombasa port without attracting the extra levy in the period.

He said that backdating during the August 14 review of pump prices is meant to cushion oil marketers from losses since KRA will “likely send them demand notice requiring payment of the extra fuel levy.”

Treasury secretary Henry Rotich announced the increase in roads levy in his budget statement for the fiscal year 2014/15, taking the charge to Sh12 per litre from Sh9.

But the publishing of the legal notice sanctioning the increment was done on July 17, two weeks after the new financial year began.

The Kenya Roads Board (KRB) collects and manages the roads maintenance levy that has been standing at Sh9 per litre since June 2006.

Additional revenue raised from the enhanced levy should partly finance the planned tarmacking of 10,000 kilometres of roads in five years and maintain the existing ones.

Kenyans consumed 2.8 billion litres of diesel and petrol in the calendar year ended December 2014.

This means that the government stands to raise more than Sh8.4 billion in the coming years from the increment alone.

The Motorists Association of Kenya, a lobby group, said the price increases coupled with higher interest rates will serve a hard blow to consumers’ budgets.

“These are tough times,” said Peter Murima, the association’s chairman.