State rejects oil firms’ bid to halt fuel price drop

The Petroleum Ministry on Tuesday rejected a petition by oil marketers for exclusion of cheaper fuel in this week’s monthly review in a push aimed at denying motorists the benefits of low crude prices.

Marketers were pushing the energy regulator to base its review of retail fuel prices starting May 15 on the March crude cost of $35.58 a barrel and not the April average of $26.63, saying they were unable to sell 40 percent of the expensive fuel due to Covid-19 restrictions.

Petroleum Principal Secretary Andrew Kamau said the government had rejected the marketers’ push, arguing that the review of maximum retail prices for petrol, diesel and kerosene on the 14th of every month is guided by the law and not fuel dealers’ requests.

“The way fuel pricing is done in Kenya is guided by the law and not at anyone’s discretion. If they wanted any change in the approach, they would have to wait until when a new legal notice is being drafted to put in such conditions,” said Mr Kamau.

“The formula is even audited and EPRA (Energy and Petroleum Regulatory Authority) cannot just change it due to some request from marketers,” he said.

Fuel prices would have been little changed had the State yielded to the marketers’ pressure to include 40 percent of expensive unsold fuel meant for consumption in the month to May 14 in the coming monthly review and exclusion of cheaper shipments, the regulator warned.

The State imposed a daily dusk-to-dawn curfew and barred movement into and out of five counties most affected by the virus, including Nairobi and Mombasa.

The marketers argue that the restrictions have sapped demand for diesel and petrol.

Retail petrol prices dropped by the biggest margin since Kenya started controlling fuel prices in 2010 with super fuel being cheaper for the first time than diesel.

Motorists in Nairobi have since April 15 been paying Sh92.87 per litre of super petrol from Sh110.87 in March, representing a Sh18 drop while diesel dropped Sh4.09 to Sh97.56.

The regulator said diesel prices were computed using expensive February cargo prices, promising deeper cuts in May to reflect the fall of the commodity in the global markets.

But the marketers were pushing for the cuts to be delayed to allow them exhaust the fuel they bought in March, arguing that they face losses amounting to billions of shillings.

“Demand for PMS (petrol) and AGO (diesel) in the month of April declined by approximately 40 percent. This disruption of sales has therefore led to accumulation of older priced cargoes in the system which pose a significant commercial exposure to marketers in the next price review,” the oil marketers representative and general manager at KenolKobil, Martin Kimani, petitioned the minister on May 6.

“EPRA to consider an adjustment for the cost of 40 percent of the cargoes factored in the April-May 2020 pricing cycle and include in the next review,” added the petition seen by the Business Daily.

Mr Kimani asked the regulator to exclude two cargoes of cheaper fuel shipped into the country in April for the May price review and estimated to have been based on crude prices at $26.63 a barrel.

“This will give marketers the much needed grace period to sell the expensive inventory,” added Mr Kimani.

The cheaper fuel is linked to the plunge in crude oil prices after a fallout between Saudi Arabia and Russia to cut production in the wake of coronavirus, which has also cut demand for energy on reduced economic activities.

The government introduced the monthly fuel price reviews -where it sets the maximum price in the middle of the month- in late 2010 following a surge in retail prices of fuel.

Costs of energy and transport have a significant weighting in the basket of goods and services used to measure inflation in Kenya.