Price jump looms as Kenya abandons petroleum price controls

A Total petrol station. FILE PHOTO | NMG
A Total petrol station. FILE PHOTO | NMG 

The cost of petroleum products is expected to jump by large margins as the government removes controls that have seen the Ministry of Energy set retail prices every month. Energy secretary Charles Keter said the price controls regime, which was established seven years ago, had run its course and needs to be retired.

The controls were introduced in December 2010 to protect consumers from high retail prices that were blamed on cartel-like behaviour among marketers. “We have seen efficiency and discipline return to the petroleum market and the government has no business to continue dictating prices,” said Mr Keter.

The minister said Kenya has expanded the capacity of its petroleum supply chain, including construction of the new, wider Mombasa-Nairobi pipeline that is expected to be completed by end of year and building of additional depots, paving the way for a return to free market.

The planned removal of price controls was first made public last week, a move that puts Kenya in the footsteps of Ghana.

“In 2015 Ghana deregulated the pricing regime, and reverted to price monitoring and the consultants found it working well,” the report says.

The Energy Regulatory Commission (ERC) started imposing monthly price controls on petrol, diesel and kerosene in December 2010 following bouts of acute shortages that were blamed on oil dealers. This often had the impact of pushing up prices and hurting consumers.

Mr Keter reckons that the market is now ripe to self-regulate since more local companies have entered the industry and intensified competition that should benefit customers.

In the years gone by we had only a few dealers, most of who were multinationals that could easily fix prices in their favour while overlooking consumers,” he said.

There are 150 licensed oil marketing companies (OMCs), 63 of them participating in oil imports. The oil marketers own 40 per cent of the 2,307 petrol stations in the country, while the remaining 60 per cent are owned and operated by independent dealers, mostly locals.

To stop price controls, the Energy ministry will have to phase out the open tender system (OTS) that awards one oil marketer the right to import petroleum in bulk every month on behalf of the entire industry.

The ERC has been reviewing pump prices every month based on fluctuations in global prices, freight costs, forex market and tax changes.