Road levy set to push petrol price past Sh100 a litre

Transport secretary James Macharia has published a notice sanctioning the Sh3 increase in roads maintenance levy, setting petroleum prices on the path to crossing the Sh100 per litre mark.

Mr Macharia published the notice last Friday — two weeks after the new financial year began — paving the way for the Energy Regulatory Commission (ERC) to include the Sh3 levy in the next round of retail price reviews that are due on August 14.

Treasury secretary Henry Rotich announced the increase in roads levy in his budget statement on June 11, taking the charge to Sh12 per litre from Sh9.

But the ERC, did not include it in last week’s review of prices that left a litre of petrol in the key Nairobi market at Sh98.59 — or less than Sh2 shy of the Sh100 mark because the minister had not published a legal notice stating the effective date.

Had the levy been included in the new price, motorists would be paying more than Sh100 for a litre of petrol, a price last seen in December last year.

“The new rate is effective from July 1,” Mr Macharia, the acting Transport secretary, told the Business Daily on Friday.

“We are looking at the logistics that will determine whether the rates will take effect in the coming days or be done with the monthly review on August 14.”

Kenya, which introduced controls on fuel prices in 2010, lists maximum prices for each region every 14th day of the month.

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.

The higher fuel levy is expected to add pressure on fuel prices that have been rising steadily since March after a dramatic fall last year with the crash in global crude prices.

READ: Fuel prices rise again, more pain at the pump ahead

Last week’s review saw fuel prices rise to the highest level this year as the shilling weakened against the US dollar, wiping out the gains from low crude prices.

Super petrol is now retailing at Sh98.59 per litre, up from last month’s Sh97.28 and Sh84.71 in February.

This means loading the additional Sh3 on every litre of petrol at the pump will take the price past Sh100 a litre, forcing motorists to dig deeper into their pockets to keep their vehicles on the road.

Besides, higher-priced oil is expected to lead to a general rise in transport costs, including commuter fares that have been dropping since January, according to the Kenya National Bureau of Statistics (KNBS).

Commuters paid an average Sh403 for a distance of 200 km in January but this had come down to Sh377 last month.

The additional amount will also impact on retail prices of goods as producers pass on the extra transportation costs to the consumers.

Most consumer goods and fresh produce have to be transported to the markets daily.

Additional transport costs eat into the producers’ margins and are usually passed on to the consumer in the form of higher product prices.

Other heavy vehicles especially in the agriculture and construction sectors, like combine harvesters, tractors and earth movers, will also cost more to run.

This will further affect the production costs, especially among maize farmers who have been complaining of low returns due to depressed farm prices.

Tour operators, heavy commercial trucking companies and logistics providers are also set to feel the ripple effect of the levy increase.

Diesel is usually used to run most heavy vehicles like lorries, buses, tractors and some sports utility vehicles (SUVs). Petrol is used to fuel the majority of smaller vehicles.

The ERC, which sets the maximum fuel prices, blamed the weakening of the shilling for the increase in this month’s review.

Although the price of Murban crude oil during importation of the fuel in June 2015 stood at $63.70 per barrel (a decrease of 3.12 per cent), the shilling depreciated 1.31 per cent to stand at Sh98.13 to the dollar.

There is a 45-day lag between the placing of supply orders and actual delivery of petroleum products at the Mombasa port, making the mid-month reviews a reflection of what happened during that period.

This means that the prices to be announced mid next month will reflect July’s crude oil prices and exchange rate. The shilling has not gained against the dollar, which means that prices will be wholly dependent on the cost of crude.

The increase, combined with the effect of the weakening shilling, could also affect inflation which has been trending upwards.

Headline inflation rose to 7.03 per cent last month from 6.87 per cent in May, pushed by rising fuel prices and a weaker shilling.

The Central Bank of Kenya prefers inflation at between 3.5 and 7.5 per cent — meaning that at 7.03 per cent, the inflation rate is discomfortingly close to the upper limit.

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

In the year to June 2015 the KRB is estimated to have collected Sh25.3 billion. 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 Sh3-per-litre rise on fuel levy, however, fell short of the KRB’s earlier proposal to the Treasury that sought to double the levy to Sh18, citing increased cost of maintaining roads.

But the government is also considering tolling and road user fees to raise more money to finance the building and maintenance of roads.

A Bill setting the stage for the introduction of fees for use of highways and county roads has been published. The Kenya Roads Bill, 2015 seeks to re-introduce the toll fee on major national roads.

It also proposes a road user charge on other national and county roads that will be based on distance travelled and the vehicle weight.