Oil dealers have revived the push for an increase in their profit margins on fuel amid concerns that this will further increase the cost of fuel.
The oil marketing companies say the current fuel pricing formula has not been reviewed for six years during which their costs have skyrocketed, hitting their earnings.
French oil company Rubis SCA, the parent company of Rubis Energy Kenya, says the Energy and Petroleum Regulatory Authority (Epra) has taken “longer than expected” to review the current tariff, which was set in 2018.
Rubis, which entered the Kenyan market in 2020 following its acquisition KenolKobil Plc and Gulf Energy Holdings Ltd, is currently the third largest oil dealer in Kenya with a market share of 15.56 percent, according to Epra.
Rubis SCA Group Chief Financial Officer Marc Jacquot says the delay by Epra to approve a new fuel tariff is exerting pressure on the company as costs continue to rise, eroding its margin. Currently, oil dealers earn a margin of Sh12.39 per litre of petrol and Sh12.36 on diesel and kerosene.
“The pricing formula has not changed since 2018, and this is something known in the industry and this is a discussion that has been ongoing for a while. Major milestones have been reached … meaning the cost-of-service study. It is a major milestone that did not happen in the past,” Mr Jacquot said in a transcript.
Oil dealers have lobbied Epra for years to review the formula without success. Kenya has 140 registered oil dealers. Their latest push for bigger margins comes amid concerns by the government over public outcry from increasing the profit margins for oil dealers. This is also coming at a time when fuel prices remain prohibitive, primarily driven by an increase in global prices and higher taxation.
But this situation has been untenable for oil dealers, says Martin Chomba, who is the chairman of the Petroleum Outlets Association of Kenya (POAK). The lobby represents the interests of independent oil dealers.
According to Mr Chomba, operational costs have doubled since the tariff was set in 2018, forcing some oil dealers to exit the business for more profitable ventures. He said that oil dealers are expecting Epra to gazette new fuel tariffs any time before the end of the year.
“We expect to have a new fuel tariff by January 2025. If this happens, the industry will be revamped. At the moment many dealers and transporters were considering walking away from the industry,” Mr Chomba told the Business Daily.
Last year, the hopes of oil dealers were raised when Epra engaged two private consultants to undertake a comprehensive Cost of Service Study in the Supply of Petroleum Products (COSSOP) to help guide the tariff review process.
The two consultants, Kurrent Technologies and Channoil Consulting Ltd, submitted their draft report to the energy regulator in August, setting off a round of public participation on the findings before a final report is made.
Epra Director-General Daniel Kiptoo could not immediately be reached for comment on the timelines for the new fuel tariff. However, the findings by the consultants can help the public predict the range within which the oil marketers’ margin will be increased.
The oil marketers’ margin is one of four major cost components included in the pricing of fuel. The others are the landed cost, storage and distribution costs and taxes and levies. In their draft report, the consultants advised that the oil marketers’ margin be increased from the current Sh12.36 per liter to Sh16.8 per liter.
This would significantly raise the cost of fuel, which is one of the most consumed products in the country. In the year to June 2024, domestic demand for petroleum products stood at 5,460,436.82 cubic-meters, according to Epra data.
It also comes at a time when fuel prices have come down significantly in recent months due to a strong shilling. Fuel is a major contributor to the cost of living. The commodity has a vast array of applications in the economy, including transport, manufacturing, agriculture and power generation.
The government has aggressively targeted fuel to raise revenue, hurting consumers and watering demand for the commodity.
Fuel currently attracts nine taxes and levies. These include the Petroleum Regulatory Levy, excise duty, Road Maintenance Levy and Petroleum Development Levy.
Others are Railway Development Levy, Anti-Adulteration Levy, Merchant Shipping Levy, Import Declaration Fee and Value Added Tax (VAT).
