Petroleum consumers in coastal towns could soon feel more pain at the pump if a proposal by the energy sector regulator to create uniform fuel prices across the country is adopted.
The proposal by the Energy Regulatory Commission (ERC) is expected to hit hardest consumers in the port city of Mombasa, who have been enjoying the lowest prices under the current regime that charges far-flung regions the most.
The ERC proposes in a report seen by the Business Daily that petrol prices be harmonised to remove cost disparities in a controlled market.
UK firm Economic Consulting Associates, through its local partner Kurrent Technologies, are the authors of the report.
The ERC hired the two firms to study the impact of the current pricing formula and make viable proposals to enhance equity among consumers.
Currently, consumers in towns near the Mombasa port pay the least for fuel on account of lower costs of transporting the commodity from the landing port.
“The objective of price equalisation is to ensure that retail prices are the same across the country regardless of location or distance,” says the report, which the ERC released for public scrutiny.
“In essence this is subsidisation of transport costs by consumers, who are nearer the source to offset the burden of those further away.”
The study also explored the possible economic impact of removing price controls, a proposal that has since been dropped.
This effectively means fuel prices remain controlled, a move supported by oil dealers.
The ERC yesterday said it had opened a 14-day window for the public to make an input before the report is submitted to the Cabinet Secretary for approval. That process is expected to take six months.
The Petroleum ministry reckons that the current pump price differences amount to a discrimination against some consumers.
Kenya’s price equalisation plan is to be modelled on those of Ghana, South Africa and Zambia.
“In the case of Kenya, this would mean having a common pipeline tariff applicable to all pricing depots irrespective of distance from Mombasa, and equal transport charges from the pricing locations to all consumer destinations across Kenya,” the report says.
The ERC study recommends immediate action be taken by authorities in preparation for rollout of uniform pump prices.
“The ERC should consider pricing by zones or counties rather than individual towns to encourage use of bigger vehicles that can make more than one drop in a trip,” the study says.
“For example, a 36 cubic metre truck from Nairobi can deliver part of the load in Nanyuki and the balance in Meru provided the two are in the same pricing zone. Zonal pricing simplifies the process and would be a good first step towards price equalisation,” it adds.
The report cites ongoing decentralisation of the pipeline for refined petroleum to more counties as a development that takes the country closer to adopting equalised pump prices.
Smooth out price variations
At the moment, the pipe network runs from Mombasa through Nairobi, Eldoret and Kisumu, while the rest of the towns are fed by trucks.
The uniform prices proposal is expected to smooth out price variation by making Mombasa consumers pay a little more and reduce the cost for Mandera motorists.
Experts, however, argue that price equalisation will only work with price controls, since the competition laws discourage price fixing in a free market set-up.
Currently, the Energy ministry awards one oil marketer the right to import petroleum in bulk every month on behalf of the entire industry through the open tender system (OTS).
Kenya in 2010 started controlling maximum price of petrol, diesel and kerosene and uses a formula to review pump prices monthly, based on fluctuations in global crude oil prices, freight costs and forex market.