Local fuel prices now fall after five-month surge

An attendant fuels a car at a petrol station. The Energy Regulatory Commission (ERC) has reduced fuel prices due to a drop in landing costs and an improvement of the exchange rates. FILE
An attendant fuels a car at a petrol station. The Energy Regulatory Commission (ERC) has reduced fuel prices due to a drop in landing costs and an improvement of the exchange rates. FILE  Nation Media Group

Fuel prices on Monday dropped for the first time since May on the back of reduced global crude prices, handing motorists some relief after the recent surge in the cost of living.

Consumer goods’ prices last month rose to the highest rate in 15 months driven by introduction of value added tax (VAT) on previously exempt or zero-rated goods.

The price increase, coming alongside a rise in the price of oil, pushed the rate of inflation to 8.29 per cent in September from 6.67 per cent registered in August.

The price of super petrol has now dropped by Sh1.61, that of diesel by Sh1.08 while kerosene has come down by Sh0.55 cents.

Besides the fall in average landed cost of oil, the strengthening of the shilling by 0.40 per cent also made a contribution, according to the Energy Regulatory Commission (ERC).

Last month, the price of super petrol increased by Sh1.62 per litre to Sh113.88 and that of diesel by Sh1.11 per litre to sell at Sh105.55 as kerosene rose by almost Sh1.63 to retail at Sh85.56 up from Sh83.93 in Nairobi.

ERC says the import cost of petrol last month rose by 6.05 per cent while that of kerosene rose by 2.11 per cent. The cost of imported diesel increased by 1.39 per cent, as the shilling shed 0.56 per cent to trade at Sh87.45 against the dollar.

Currently, the shilling is trading at Sh85 against the dollar meaning there is space for further cuts if the status quo holds in the run-up to the next review mid-November.

ERC has cautioned all petroleum dealers against contravening the set price, a practice common in Western Kenya.

“It is an offence to sell petroleum products against the published prices; a person who contravenes this requirement will be liable for punishment,” says Linus Gitonga, director general ERC.

Ted Macharia, an investment analyst with the AIB Capital Limited argues that the drop in fuel will not significantly impact on inflation.

Transport and communication constitutes 12.7 per cent of the inflation basket with petrol contributing 15.9 per cent of the cost burden associated with overall transport costs.

“With this drop, we expect the inflation to remain at the same rate as it is currently. We rather expect the shilling’s strength against the dollar to be of much impact against inflation,” says Mr Macharia.

The shilling, he says, has strengthened against dollar in recent days following the partial shutdown of the federal government in America.

Matatu Owners Association termed the decrease in fuel price insignificant given the fact that it will not make any difference in their profit margins. Chairman of the association Simon Kimutai pointed out that each vehicle consumes an average of 60 litres per day, translating to a minimal saving.

“In essence, we would only save Sh60 in a day going by the current decline of the price of diesel. This amount has no impact on our profits,” says Mr Kimutai.

He urged the government not to impose the 16 per cent VAT on fuel to enable the industry operate in a business friendly environment. The VAT on fuel has been suspended for three years.

He noted that the huge portion of the expenses incurred by public transport vehicles was attributable to fuel, which should be shielded against VAT 2013 Act that may force operators to withdraw their vehicles from roads.

“Public transport is a key driver of the country’s economy and low cost of operation is one of the fundamental factors that can keep it afloat,” he said.

The new VAT, which took effect on September 2, has affected a wide range of items, including bread, milk, books and newspapers. It has however been clarified that the first two items are exempted.

While announcing the fuel review for last month, Mr Gitonga was quick to point out that the new law had not affected fuel prices in anyway. 

“We want to make it clear that the rise in fuel prices has not been affected by VAT, but other factors such as the exchange rate,” said Mr Gitonga.

ERC reviews domestic energy prices every month, with adjustments made depending on key factors such as fluctuations in global energy prices and foreign exchange.