The Energy and Petroleum Regulatory Authority (Epra) is at the centre of a government-backed deal to import fuel on credit in a bid to strengthen a shilling battered by the dollar.
The regulator also announced higher electricity tariffs that took effect from the start of this month, besides spearheading efforts to lower the prices of cooking gas.
Daniel Kiptoo, the Epra director-general, talked to the Business Daily about what to expect after the first cargo lands in Kenya this week.
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Since Kenya signed the deal with the three Gulf oil majors, what has been happening behind the scenes?
Signing the agreement was one part of the deal. There is now the bigger issue of the operational side to ensure a seamless transition. Kenya Pipeline Company is working on increasing the evacuation capacities of its pipes from Mombasa to Nairobi and other depots.
As a regulator, we are working with Kenya Pipeline and private depots to ensure that we utilise all available tanks in the country to ensure that we minimise the demurrage costs. We have to contain these cargoes within the shortest time.
There is a lot of pipework that needs to be done to increase capacities and boost flow rates, which then increases discharge from the vessels.
Does this mean that all the fuel to be used in the monthly cycle starting April 15 will be imported through the government-to-government deal?
We have some Open Tender System (OTS) cargoes that marketers have ordered and so as the regulator, we have to ensure that marketers do not abandon their obligations. We must ensure that they do not abandon this OTS cargo that must be paid for in dollars.
So if a marketer had ordered 100 million litres of fuel through the OTS, then that obligation must be settled, otherwise we will crack the whip on them.
Are we looking at a possible extension of this deal beyond December?
We have a nine-month contract and so when we get to December, as a government we will check to see if there is a need to extend it or revert to the OTS. The decision will be based on the lessons learnt and the benefits, the pros and cons of this deal because this will also be a learning curve.
If after nine months the shilling stabilises then there will be no need but if there is another benefit we shall see. If this macro problem of the shilling is solved then we are home and dry.
Does the new deal change how the fuel prices will be calculated?
No. This is because price build-up remains the same. The only change will be in the landed cost, which is the biggest cost and is paid in dollars. But now oil marketers will pay importers in Kenya shillings.
However, instead of having different rates for freight and premium for eight cargoes as it happens in the OTS, we will have the same rates for three grades — super, diesel and jet.
What will change is the freight and premium because we will not be doing freight and premium for individual cargoes but it will be uniform across three cargoes because there is only one supplier.
Does the deal mean an end to the OTS?
No, we will be able to revert to the OTS if and when conditions allow us, remember, we are using petroleum to solve the dollar issue.
What we did is that as per the Petroleum Act and regulations, we have just exercised the other option which is the flexibility to use OTS or a government-backed deal.
In the new tariff that took effect at the start of this month, Epra reduced the fuel cost charge to about Sh3 from Sh8. How did the regulator get to this figure?
We are getting to the tail end of historical costs [the 15 percent government subsidy and we had to hold fuel cost charge constant to sustain the subsidy, new power plants that came in since 2018 but were not included in the base tariff].
We had not done a tariff review since 2018 and so we used pass-through costs to cater for payments to these plants that were not in the base tariff.
Pass-through costs take care of forex, fuel energy cost, inflation and any other costs that were not factored in at the time of the last tariff review.
What will be the impact of the rebasing in terms of energy bills?
Because of the historical costs that I mentioned, you found that if you spent Sh10,000 to buy tokens, only Sh4,000 would go to the actual purchase of the units while the remaining Sh6,000 would cater for taxes, levies and the pass-through charges.
This bill composition will now be inverse because the Sh5 difference (reducing FCC to Sh3 from Sh8) will go where it is supposed to be, base tariff and this way a bigger chunk of every amount you spent to buy electricity will no longer cater for these pass-through costs and the levies.
