Pay review for oil firms seen triggering price jump

Motorists fuel at the Kileleshwa Shell Petrol Station in Nairobi. PHOTO | SALATON NJAU | NMG

The Energy and Petroleum Regulatory Authority (Epra) is reviewing the compensation formula for oil marketers in what could prompt an increase in fuel prices if new costs are included in the pricing regime.

Epra says it has started a cost-of-service study that will guide compensation for all costs that sellers incur, aimed at cushioning marketers by ensuring that they are paid for any emerging costs incurred in the entire supply chain of refined fuel.

But the review, which is projected to be closed in the current financial year, looks set to trigger higher pump prices and fuel the cost of living.

Pump prices have shot up in the last year due to higher crude prices as a result of the Russia-Ukraine war, and have needed a costly government subsidy to keep the cost per litre from hitting the Sh200 mark.

Oil marketers are compensated for the costs incurred in storage, distribution of refined fuel and also supplier margins in the current pricing formula.

Dealers have been asking to be paid for trucking super, diesel and kerosene fuels from Mombasa and also compensated for the high dollar exchange rates.

“We are reviewing the pricing formula through a cost-of-service study. We hope that at the end of the current financial year, we have completed the process,” Epra said.

Distribution costs account for Sh3.62 per litre of super— the highest among the three fuel types. The costs account for Sh3.23 and Sh3.22 per litre of diesel and kerosene respectively.

Oil marketers also get paid for their margins (retail investments and operating costs), a compensation that has for the past few months been eliminated by the government under the fuel stabilisation scheme.

Margins averaged Sh12 per litre of diesel, super and kerosene last year before Epra slashed them to zero in a bid to lower the pressure on the compensation margins at the back of a spike in global costs of crude.

A litre of super is retailing at Sh159 while that of diesel is going for Sh140 in the current pricing schedule that will end tonight.

Marketers are currently trucking fuel from the Kenya Pipeline Company’s depots in Mombasa prompting them to push for an increase from the government to cushion them from losses.

The dealers have also been hurt by the shilling’s weakening against the dollar, which has significantly increased exchange losses for the dollar-hungry importers.

Epra’s compensation to dealers is based on the printed official exchange rates, which are lower than the rates that oil marketers buy from banks.

Marketers petitioned the government to consider the shilling exchange rate against the dollar in the monthly compensation, pleas that Epra remained non-committal on how the government will compensate for losses.

The dealers had said the weaker rate exposes them to losses of up to Sh3 per litre hurting the ability of oil majors to offer fuel to independent dealers at wholesale prices.

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