More fuel prices pain looms on parallel dollar rates

Rubis Energy Kenya fuelling station at the United Nations Avenue in Gigiri, Nairobi. FILE PHOTO | NMG

Oil marketers are pushing for further increases in fuel prices to compensate them in the wake of a parallel exchange rate system, even as pump prices hit an all-time high in the latest review.

The Business Daily has learnt that as the Energy and Petroleum Regulatory Authority (Epra) was working on the latest review of fuel prices that saw pump prices increase by Sh9 across all fuel categories last night, dealers had turned their focus on the dollar shortage that has seen them buy the greenback most expensively than the printed official exchange rates.

Documents seen by the Business Daily show that Epra’s compensation to the dealers is based on the printed official exchange rates which are lower than the rates that oil marketers buy dollars from the banks.

Epra’s compensation per litre for last month was based on the official printed dollar exchange rate of up to Sh116.24 per litre compared to the Sh118.34 per unit that marketers bought dollars from the banks, exposing them to losses of up to Sh2.10 per litre.

But further compensation for the marketers will prompt further increments in the cost of fuel given that Epra uses the forex exchange rates in setting the monthly prices.

The forex exchange variance is linked to the current shortage of dollars that has sparked a parallel exchange rate prompting lenders to buy and sell the greenback well above the printed official rate.

“If I am buying the dollar at Sh118 and am getting compensated at the rate of Sh115, then that is a loss of Sh3 on the dollar exchange alone,” A CEO of a local oil firm who sought anonymity said.

“Are you going to negotiate with the banks on the dollar rates or you are focused on getting enough dollars to make payments for your shipments?”

Epra Director-General Daniel Kiptoo confirmed receipt of a protest letter from the marketers but remained coy on how the State will compensate for the losses tied to the dollar exchange rates.

“We have received a letter from them which we are reviewing. We will be guided by our pricing regulation,” Mr Kiptoo told Business Daily on Monday.

Oil dealers like other importers rely on dollars to make payments for their shipments and the parallel exchange rates from banks have exposed them to losses.

The marketers reckon that the losses per litre of super, diesel and kerosene may widen in the monthly pricing schedule that will come into effect from midnight.

Dealers are waiting for compensation of 11 cargoes of the three fuels for the pricing reviews of April-May and May-June where they look set to take a big hit due to the parallel exchange rates for the dollar.

The State has since April last year been paying oil marketers to keep pump prices low at the back of a global rally in crude prices.

But a shortage of dollars has piled pressure on the oil dealers who like other importers of goods use the greenback to make payments.

French multinational Rubis in March cited the dollar shortage as one of the biggest challenges bedevilling its Kenyan operations, highlighting the fears that have since spread across the private sector.

The revelations follow similar claims by manufacturers who said that they are buying the dollar at rates higher than those published by CBK.

Demand for dollars locally has gone up significantly this year due to a surge in imports following the full reopening of the economy, which has unleashed pent-up demand for both consumer and capital goods.

But CBK Governor Patrick Njoroge and Treasury Principal Secretary Julius Muia have blamed manufacturers for creating an ‘artificial shortage’ of the dollar saying that the country has enough reserves of the greenback.

A parallel exchange rate market develops, in such circumstances; and when the spread between the official and parallel rates is both substantial and sustained, the International Monetary Fund official (IMF) says in a working paper.

Epra’s use of the official printed exchange rates for the dollar that are lower than the rates charged by banks has piled more pressure on the oil marketers who are grappling with delayed compensation from the State for keeping pump prices low.

Oil marketers have not been paid for the past three monthly pricing reviews leading to arrears estimated at more than Sh20 billion.

The government has not compensated marketers for the monthly reviews of March-April, April-May and May-June amid depletion of the subsidy kitty.

Oil dealers have also unsuccessfully pushed to have the government pay interest on the delayed compensation saying this will ease the burden of interest on bank loans used to pay for fuel shipments.

Independent firms tap bank loans to pay for the fuel and food distribution costs and the delayed compensation has hurt the ability to service the loans leading to penalties.

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