Kerosene prices are set to rise to the level of diesel as the government moves to prevent unscrupulous traders from using it to blend diesel and petrol for higher margins.
Petroleum principal secretary Andrew Kamau said the impending tax increase is also part of a wider plan to discourage use of kerosene for cooking and lighting in favour of clean energy sources.
“In the near future, we are likely to see an increase in tax on kerosene to match that of diesel in a bid to reduce adulteration of diesel with kerosene,” said Mr Kamau.
Kerosene is currently priced at Sh20 below diesel, making it a suitable blend for petroleum products for traders looking for higher profit margins.
Lower tax on paraffin was originally meant to cushion low-income households that use it for lighting and cooking from high cost of living but profit-hungry traders have turned it into a dirty cash cow that earns them millions of shillings from sale of adulterated fuel.
The Energy Regulatory Commission (ERC) has recently taken action against a number of petrol stations selling petrol and diesel contaminated with paraffin at the pump, a blend which has the effect of shortening the lifespan of car engines.
Besides, fuel adulteration leads to economic losses in unpaid taxes, deterioration in performance of engines and unfair competition.
If implemented, a higher kerosene tax will hit hard poor homes that rely on it to power cooking stoves and lantern lamps, along with small-time fishermen who use kerosene lamps for nighttime fishing.
Mr Kamau said that the government plans to roll out social safety-net projects to offer poor homes a soft landing in the event of a steep rise in the cost of energy.
He said the State has embarked on a cooking gas campaign targeting low-income households with cheaper 6kg gas cylinders, complete with burners and grills at a cost of Sh2,000, which is 70 per cent lower than market rates.
Dubbed Gas Yetu, the cylinders will be distributed to low-income households countrywide by State-owned National Oil.
The Petroleum Institute of East Africa (PIEA), the oil marketers lobby, reckons that matching kerosene diesel pump prices would be a permanent solution to the long-running problem of diesel contamination.
“This is the only viable long-lasting solution because it will make fuel adulteration non-profitable,” said PIEA chairperson Anne-Solange Renouard.
A recent rise in the prices of diesel and petrol has intensified contamination of the two products. PIEA estimates that more than half of imported paraffin is used for adulteration.
The government takes a total of Sh8.42 in taxes from every litre of kerosene sold at the fuel pump, making it the least taxed fuel, in comparison to petrol, taxed at the rate of Sh39.17 per litre, and diesel Sh29.57.
It is this price difference that has encouraged blending of diesel and petrol with paraffin to increase profit margins.
In June 2016, the Treasury introduced an excise duty of Sh7.20 per litre of kerosene to help narrow the yawning price gap with diesel and petrol and subsequently reduce dealers’ incentive to adulterate fuel.
Industry insiders, however, say the price difference has proved too small to deter adulteration, forcing the ERC to embark on sting operations at petrol stations to arrest culprits.
In 2015, the ERC launched self-test kits, modelled on South Africa’s, to be stationed at fuel depots across the country for testing quality of fuel at depots in an effort to tame fuel contamination.
Oil dealers are required to dye kerosene with an imported marker that helps detect mixing of petrol and diesel with kerosene.
The doped kerosene turns the mixed fuel pink when tested using the kit.
Kenya in 2010 started controlling the maximum price of petrol, diesel and kerosene, limiting oil dealers’ avenues for raking in larger profits to higher sale volumes and cost management.
Consumption of diesel, used to power commercial vehicles and agricultural machinery, stands at an average of 210 million litres per month or 2.5 billion litres a year, making it the most used fuel in the economy, according to latest PIEA data.
Petrol intake is 142 million litres a month or 1.7 billion a year while kerosene’s use is 44 million litres a month or 530 million a year.