State raids KPC revenue basket for fuel subsidy

The Kenya Pipeline Company (KPC) has been dealt a financial blow after the energy regulator cut the cost of storing and handling imported fuel by 31 percent amid sustained efforts to keep pump prices low and stem public anger.

Dealers will effective August 1 pay $3.59 (Sh394.54) per cubic metre as a combined handling and storage fee for imported fuel, down from $5.18 (Sh569.28).

In the new tariff schedule released by the Energy and Petroleum Regulatory Authority (Epra), marketers are now paying a fuel handling levy of $0.28 (Sh30.8) per cubic metre, down from $0.99 (Sh109.8) to while the storage charges have dropped to $3.31 (Sh363.8) from $4.19 (Sh460.5).

The handling and storage fees will, however, rise to $3.93 (Sh431.90) per cubic metre from July next year and further to $4.18 (Sh459.38) from July 2023.

“The effective date of the above set of tariffs is August 1, 2021, and subsequent adjustments for the next tariff control periods will be on 1st July of each year,” Epra director-general Daniel Kiptoo said in a notice on Friday.

The reduced tariffs are applicable at the State-run Kipevu Oil Storage Facility (KOSF), Kipevu Oil Terminal (KOT) as well as the privately-owned VTTI-Kenya terminal in Mombasa.

Though the review by Epra favours oil marketers and consumers, it deals a financial blow to KPC, which draws revenues from the KOSF.

The KPC raised Sh3.58 billion in storage fees from its Kipevu storage facility popularly known as KOSF in the period to June last year. Going by the revenue performance figures in the year to June 2020, it means that KPC would have lost 31 percent of the earnings or close to Sh1.1billion.

“The impact of the fuel storage and handling charges will be felt in our financial books,” a source at KPC told the Business Daily.

Earnings from storage and handling fees accounted for 13 percent of KPC’s overall revenue for the financial year ended June 2020.

The reduction of fuel handling and storage tariff comes barely a year after KPC suffered a 17 percent drop in its throughput revenue to Sh26.1 billion for the year ended June last year due to reduced pipeline tariffs by Epra. Kenya cut its pipeline tariffs as tried to win back importers from landlocked countries who had opted to ship oil through Tanzania due to the high charges on KPC’s line.

This translated to a throughput revenue fall of Sh5.2billion from the previous financial year.

“This decline is largely attributed to the downward revision of pipeline tariffs by the Energy and Petroleum Regulatory Authority by between 19 percent and 3 percent for local sales and 48percent and 33percent for export sales respectively. The revenue was further affected by the decline in sales due to the Covid-19 pandemic,” KPC said in its 2020 annual report about the dip in earnings from pipeline tariffs.

Both Epra and the Petroleum ministry did not respond to enquiries on the storage and handling tariff cut decision even though insiders said it is aimed at lowering pump prices at a time the State has opted to keep retail prices un-changed to stem public anger.

The new tariffs are set to reduce fuel prices by at least Sh1 per litre. Petrol is currently retailing at Sh127.14 per litre, diesel at Sh107.66 per litre and kerosene is going for Sh97.85 per litre.

Reduction of the fees is aimed at cushioning consumers from a sharp rise in retail prices at a time the cost of importing fuel has been on a steady rise in the wake of the global recovery of crude prices.

Storage and distribution costs account for Sh3.17 per litre of petrol and Sh2.90 for every litre of diesel in the latest review of fuel prices that will lapse on 14th this month.

The tariff cut comes at a time the State has turned to a fuel subsidy to prevent a sharp rise in the price of petrol and diesel and curb growing public anger over the increased cost of living.

Petrol prices were in April set to increase by Sh4.30 to Sh127.11 per litre in Nairobi while diesel was expected to rise from Sh107.66 to Sh109.96 — the highest level since December 2018.

But the State opted to cut margins for oil marketers and keep prices unchanged, saving consumers from one of the biggest jumps over the period in recent history. Oil marketers’ margin for super petrol was cut from Sh12.39 a litre to Sh7.95 over the month to May 14, representing a cut of Sh4.44.

The margin for diesel was cut by Sh2.28 to Sh10.08 a litre while that of kerosene has been lowered to Sh8.89 from Sh12.36.

Oil marketers Sh1.43 billion for the cut on their margins for the April to May review. The State is also expected to compensate the dealers for the reviews of May-June, June-July, July-August, and August to 15th of this month.

Last month, the Ministry of Energy told Parliament that consumers would continue to enjoy the subsidy despite the rise in crude oil and the cost of importing refined products as the State reviews all the components used to determine fuel prices.

There are seven levies, two taxes, and other charges that include storage, distribution, depot, and pipeline losses that Epra uses to set the monthly fuel prices.

The fuel subsidy is supported by billions of shillings that have been raised from consumers through the Petroleum Development Levy, which was increased to Sh5.40 a litre in July last year from Sh0.40, a 1,250 percent rise.

The fuel subsidy is meant to cushion motorists from a steep rise in the cost of diesel, petrol, and kerosene when the global prices go beyond the $50 (Sh5,486) per barrel mark.

Crude oils have since January been on recovery as economies re-open from the Coronavirus-induced lockdowns that had suppressed demand.