The current fuel price controls were introduced amid consumer uproar over perceived exploitation by oil marketing companies. The price controls have not worked as smoothly as would have been expected, but it would be a big mistake to scrap them before ensuring that consumers’ interests are safeguarded.
Kenya is a liberalised economy, in which prices of goods and services are purely determined by factors of demand and supply.
Except in a few sectors such as electricity, water, banking and recently maize flour where the government has intervened to protect consumers, the liberal regime has to work well.
It is important that the State allows the private sector to thrive without imposing unnecessary strictures. But, as has been the case in the above-mentioned sectors, the principle of free markets has proved time and again to be imperfect.
In the case of Kenya’s fuel sector for example, interventions were found necessary after a big disconnect emerged between international and local fuel prices.
Oil marketing companies that have the financial heft to import expensive consignments of oil were found to have been exploiting consumers by factoring in abnormal profit margins.
The situation was made worse by Kenya’s inadequate fuel handling infrastructure, which caused the oil importers to incur huge penalties for holding ships at the Kipevu offloading terminal beyond acceptable contract periods.
The fact that Kenya did not have storage facilities that could last at least three months also exposed consumers to wild fluctuations in prices in tandem with the international markets.
The offloading facilities at Mombasa Port are being upgraded, while the Kenya Pipeline Company has undertaken to complete upgrade of the Nairobi-Mombasa pipeline by early next year.
There have also been promises to significantly increase storage facilities. Some policymakers have suggested the setting up of a fund to smoothen price fluctuations for imported fuel. These steps will go a long way in addressing Kenya’s infrastructure inadequacies.
But there is need for a professional study to determine whether they will help to stabilise local fuel prices and avoid exploitation by oil marketing firms.
The current effort to re-examine the policy is reasonable, but the ultimate decision must be informed by professionally done studies and wide stakeholder consultations.