Economy

How late night meeting froze petrol prices hike

PETROL-PRICES

A customer attendant at Total petroleum station on Kimanthi Street, Nairobi. NMG PHOTO

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Summary

  • The Energy and Petroleum Regulatory Authority (Epra) Wednesday said petrol, diesel and kerosene prices would remain unchanged over the next month despite a rise in crude oil costs and a weakening shilling.
  • A brief by Epra on Tuesday evening seen by the Business Daily had shown that the price of petrol would increase by Sh4.30 to Sh127.11 per litre in Nairobi and that of diesel from Sh107.66 to Sh109.96.
  • The fear of the upward reviewing fuelling public anger, which had caught the attention of State House and the National Intelligence Service (NIS), prompted a flurry of meetings involving top officials.

The energy regulator opted to cut suppliers’ sales margin by 35 percent or Sh4.44 a litre to keep fuel prices unchanged and defuse public outrage over a monthly review that would have pushed costs to a historic high.

The Energy and Petroleum Regulatory Authority (Epra) Wednesday said petrol, diesel and kerosene prices would remain unchanged over the next month despite a rise in crude oil costs and a weakening shilling.

A brief by Epra on Tuesday evening seen by the Business Daily had shown that the price of petrol would increase by Sh4.30 to Sh127.11 per litre in Nairobi and that of diesel from Sh107.66 to Sh109.96.

The fear of the upward reviewing fuelling public anger, which had caught the attention of State House and the National Intelligence Service (NIS), prompted a flurry of meetings involving top officials at the Treasury, the Ministry of Energy and Epra to discuss the review.

A decision was made last evening to keep the prices unchanged and cut the oil marketers’ margin, which has been regulated by the State since 2010, with the promise of compensations estimated at Sh1.7 billion.

The marketers’ margin for super petrol has been cut from Sh12.39 a litre to Sh7.95 over the month to May 14, representing a cut of Sh4.44.

Diesel margin has been cut by Sh2.28 to Sh10.08 a litre while that of Kerosene has been lowered to Sh8.89 from Sh12.36.

“We made a late decision to cut the suppliers’ margin and offer millions of motorists a relief. This was more of a political decision than an economic one because public anger has been mounting,” said a top Ministry of Energy official who requested not to be identified given the sensitivity of the matter.

The decision will see marketers get an estimated Sh1.11 billion compensation from taxes, Sh480 million on diesel and Sh108 million on kerosene.

The current pump prices are based on the barrel at $65.16, up from $61.61 previously, and $55.27 in February, signalling an increase to the highest level in Kenya’s history.

This is the first time the government has kept petrol prices unchanged since it started carrying out a monthly review of retail fuel prices in 2010 after they shot upwards, driving up the cost of living.

It is the second time for diesel over the period given the prices were unchanged in April 2018.

Kenyans on social media have recently raised concern over reduced cash flow, fewer employment opportunities and mounting public debt, which triggered a petition to the International Monetary Fund (IMF) to stop giving the country more loans.

The petition from the Kenyans on Twitter - also known as KOT – came days after the IMF approved a $2.34 billion (Sh250 billion) loan on April 2 to help the country respond to the Covid-19 pandemic and address its debt vulnerabilities.

Kenya was hit hard at the onset by the pandemic, but its economy has been picking up after posting a slight contraction of 0.1 percent in 2020, the IMF said.

Policy makers and politicians are taking notice of the online campaigns by ordinary Kenyans concerned about how the State coffers are handled as politicians start campaigning for next year’s elections.

Were it not for the last-minute changes in the monthly review, petrol prices would have increased by Sh20.12 a litre over the past three months, with diesel up Sh13.56 over the same period.

Recent price increases sparked anger among Kenyans, with the costly fuel unleashing pricing pressure across the economy and having ramifications on the cost of living measure.

They have also shifted the spotlight on taxation of petroleum products, with Kenyans in border towns reportedly seeking cheaper fuel in the neighbouring countries of Tanzania and Uganda.

There are seven levies and two taxes that Epra takes into account when setting fuel prices, which have been blamed for the high cost of petroleum products.

The levies account for 48 percent of current petrol costs.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum.

The energy regulator raised foreign exchange and fuel adjustment surcharges it levies on March electricity bills, hitting household budgets.

In Kenya, for instance, the majority of the population relies on kerosene and gas for lighting and cooking, making crude price a key determinant of the rate of inflation.

The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.

Ploughing costs jumped 30 percent in the North Rift to Sh3,000 an acre as tractor owners passed the cost of a sharp increase in price of diesel to farmers.

Inflation rose to an 11-month high in March on the back of increased cost of transportation, fuel and basic foodstuffs, the Kenya National Bureau of Statistics said on Wednesday.

It increased 5.90 percent from 5.78 percent a month earlier, signalling a pain for homes and businesses already battling pandemic knocks on earnings.