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Economy

Fuel consumption hits 3-year low on high taxes

Fuel prices
The Treasury will take Sh57.57 out of every one litre of super petrol sold in Nairobi beginning this Saturday, FILE PHOTO | NMG 

Fuel consumption has dropped to its lowest level in three years on increased taxes, pointing to slowed activity in the economy and a gloomy earnings outlook for oil marketers.

Latest figures by the Petroleum Institute of East Africa (PIEA) -- the professional body for the oil and gas industry in the region -- show that fuel consumption dipped by six per cent to 5.92 billion litres in the year ended December 2018.

Wanjiku Manyara, the General Manager at PIEA, attributed the drop in consumption to increased tax on fuel.

Other factors cited are reduced cargo transportation by road as well as the injection of more green energy in the national grid.

“The equalisation of diesel and kerosene has impacted on the drop in demand for kerosene while the drop in fuel oil is related to the increase of wind and geothermal in electrical power generation,” Ms Manyara said in a report.

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Last year’s fuel consumption was the lowest since 2015 when the some 5.88 billion litres were utilised. In 2016, the country consumed 6.32 billion litres, followed by a lower 6.29 billion litres in 2017.

Kerosene most affected

Kerosene was the most affected, with consumption falling by 42 per cent to 374.94 million litres in 2018 from 533.79 million litres used in the previous year. The government has kept an eye on kerosene following widespread abuse by cartels which used it to adulterate other fuel products.

To stop the malpractice, the State in September 2018 slapped a Sh18 per litre tax on kerosene.

Energy Regulatory Commission (ERC) Director-General Pavel Oimeke had said in October that quantities of kerosene leaving depot had reduced considerably.

“Our own studies show that a lot of it, 70 per cent to 75 per cent, was going into adulteration,” he said last year.

Fuel adulteration leads to economic losses in unpaid taxes, deterioration in performance of engines and unfair competition.

Fuel oil, partly used to run thermal power plants, saw a 39 per cent drop in consumption to 435.28 million litres as thermal power usage dropped.

Kenya Power financials for the half year period ended December 2018 showed that 44 percent of the power sold came from geothermal sources while 39 percent was from hydro. Wind contributed 15 percent.

Thermal, which was at 24.5 percent in December 2017, now stands at just 9.6 percent of the national grid energy mix, according to the ERC data.

Diesel consumption

During the year under review, diesel consumption stagnated. It grew by just 0.93 per cent to 2.53 billion litres.

Its reduced consumption is being linked to the Standard Gauge Railway (SGR) cargo business.

“The stagnated growth in diesel relates to the disruption of cargo transportation by road from the port of Mombasa to inland destinations which is increasingly being replaced by the SGR,” says Ms Manyara.

The declining sales come at a time when Kenya’s middle class continues to bulge with a direct effect on car registration.

This may signal an economic slowdown since even petrol, whose consumption may not have been much effected by the SGR also dropped in sales.

Low sales volumes

Low sales volumes also have a ripple effect on corporate tax collection from the oil marketing companies who have reported reduced revenues, affecting their income tax contribution.

Kenya had hoped to collect some Sh71 billion when the idea of 16 percent VAT on petroleum was first floated. The rate was halved in September, reducing the unpopular tax to eight percent, meaning the sales would have been worse had it been retained at 16 percent.

Diesel, used to power commercial vehicles such as buses and tractors, would ordinarily experience rising sales in January when land preparations peak but the commodity sold 12 million liters less in 2019 compared to a similar period last year.

The sales are bound to decline further as high international crude prices for the last one month are expected to reflect in higher pump prices locally.

This month, ERC announced that prices of Super Petrol, Diesel and Kerosene in Nairobi had increased by Sh5.25, Sh5.52 and Sh2.76 per litre respectively as motorists eagerly await the next revision in three weeks.

The shilling has also remained shaky in the last four months complicating further chances of cheaper fuel and more sales volumes in the Kenyan market.

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