Plan for fuel hedge fund shelved until next year

Energy PS Joseph Njoroge. FILE PHOTO | NMG
Energy PS Joseph Njoroge. FILE PHOTO | NMG 

Kenya’s plan to set up a petroleum fund that will hedge consumer fuel prices against global changes has been shelved until end of next year.

Energy principal secretary Joseph Njoroge on Tuesday said the fund, which was first announced in 2015, would be set up at the Treasury in the next financial year starting July 1.

The fund is meant to cushion consumers from volatility in fuel prices but it will also see motorists lose out on big cost cuts when global crude prices fall sharply.

“The fund is necessary where volatility in global prices is a major risk for economic planning. We will have it in the next financial year,” said Mr Njoroge.

The Energy Regulatory Commission (ERC) reviews fuel prices monthly.

The stabilisation fund will see the energy regulator pass on the benefits of lower prices to motorists by half and increase product prices by a similar margin should crude prices rise sharply.

“If the price of petrol is Sh94 a litre today but drops to Sh90 after another round of procurement, we will lower by Sh2 instead of Sh4 with the other half going to the fund,” said Mr Njoroge.

The ministry reckons that the fund — which is modelled as a hedging tool — would ensure local firms and motorists do not suffer steep price fluctuations caused by global market changes.

Critics have, however, argued that hedging is unnecessary, saying that the country should instead invest in larger storage facilities to allow importation of large cargo in times of lower prices and enjoy price stability.