Economy

State rejects bid to review fuel prices twice every month

fuel

Pump attendant fueling a vehicle at Shell Petroleum Station on Kenyatta Avenue in Nairobi on Wednesday, April 14, 2021. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • The Energy and Petroleum Regulatory Authority (Epra) said the current monthly review ensures price certainty and gives the State enough time to react to any increase or decrease more effectively.
  • Epra uses the fuel cargoes imported between the 9th and 10th of a month to set the prices that are in place up to the 14 days of the following month.
  • Oil marketers said they are forced to hoard fuel imported after the 10th day of the month due to uncertainty until the pricing review for the following month.

The Energy ministry has shot down a proposal by oil marketers to review fuel prices twice a month, putting an end to a silent push by the industry to shield them from mid-month fluctuations.

The Energy and Petroleum Regulatory Authority (Epra) said the current monthly review ensures price certainty and gives the State enough time to react to any increase or decrease more effectively.

Oil marketers had argued that a bi-monthly review of fuel prices would boost their cash flows because it would increase the certainty on prices and allow them to sell available stock without waiting for a month to get the prices.

The Epra uses the fuel cargoes imported between the 9th and 10th of a month to set the prices that are in place up to the 14 days of the following month.

“In the event, there is a change in the market either upwards or downwards we are able to react to it much faster at the pump.

“For the marketers, this is to their advantage if the price goes up and disadvantages them if the price is going down,” Epra director-general Daniel Kiptoo told the Business Daily.

“Similarly for consumers, the opposite would obtain. There is also the issue of certainty and predictability where we don’t want to have price change announcement every two weeks at this stage.”

Oil marketers said they are forced to hoard fuel imported after the 10th day of the month due to uncertainty until the pricing review for the following month.

The rejection of the proposal has saved consumers from anticipated price increases every two weeks and cushioned the fuel subsidy scheme that has come under mounting pressure to raise cash for compensating oil dealers.

Deliberations on the proposal for a bi-monthly review of the prices were part of the agenda during a meeting last month by the regulator and oil dealers.

Mr Kiptoo said a bi-monthly fuel price review would raise administrative costs given that the Epra would use half of the oil shipped in to set the prices.

A bi-monthly review of fuel prices would have ripple effects on the cost of living every two weeks given that the Kenyan economy is diesel-driven with increases directly impacting the cost of goods and services.

Global prices for crude edged towards the $90 per barrel last week due to supply disruptions after militants attacked oil-producing facilities in the United Arab Emirates.

An increase in the global crude prices translates to increased landing costs which means that the government would be forced to increase compensation to the marketers to cover the rise in buying and shipping costs.

Kenya has delayed compensating oil marketers for keeping prices unchanged for the three monthly cycles since November.

The payment hitches have been blamed on the lack of enough cash in the kitty after Treasury diverted Sh18.1 billion from the fund to the Transport and Infrastructure ministry to defray the Standard Gauge Railway costs in September last year.

Diversion of the funds led to discontinuation of the subsidy, prompting fuel prices to hit a historic high of Sh134.72 per litre of super and Sh115.6 per litre of diesel in Nairobi in the month to October 14- the highest in Kenya’s history.

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