How government milked price controls to slap Kenyans with high fuel costs


A fuel pump attendant points at fuel pump during the beginning of an indefinite strike ...
A fuel pump attendant points at fuel pump during the beginning of an indefinite strike at a petrol station in downtown Nairobi, Kenya September 3, 2018. REUTERS/Njeri Mwangi

In Summary

  • By working out a formula which cushioned Kenyans while at the same time guaranteeing profit margins for oil marketers, the price fixing regime was seen as a cure for runaway pump prices as volatility struck the international market.
  • The price controls effected in 2011 would work as intended in subsequent years through to 2014 when global oil prices took a turn for a slide.
  • As global prices recover as more countries ease COVID-19 restrictions to aid the resumption in demand for fuel as more cars return to the roads and planes take-off, Kenyans could be staring at more exorbitant fuel costs by the end of 2020.

In 2011, the government moved to enforce price controls by effecting maximum pump prices through the then Energy Regulatory Commission (ERC).

The enforcement of the price ceilings on fuel products was at the time aimed at cushioning Kenyans from high fuel prices as international crude prices averaged north of Ksh.10,700 ($100) at the time.

By working out a formula which cushioned Kenyans while at the same time guaranteeing profit margins for oil marketers, the price fixing regime was seen as a cure for runaway pump prices as volatility struck the international market.

The price controls would work as intended in subsequent years through to 2014 when global oil prices took a turn for a slide.

In the years following the turn in prices, global fuel price have peaked below the $100 mark per barrel to signal relief to users especially in net oil importers such as Kenya.

The relief witnessed at the global stage especially this year has however failed to register back home with the government slapping fuel products with new levies and taxes to deny Kenyans the much needed relief at the pump.

Pain at the pump

The higher taxes and levies on fuel have now eclipsed the underlying cost of fuel in recent months following the enactment of more tax legislation on products.

In April for instance, the Tax Laws (Ammendment) Act allowed excise levies to be computed in the calculation of VAT on fuel leading to even higher prices.

In the most recent review, Petroleum Cabinet Secretary John Munyes ammended the petroleum development levy to slap an additional Ksh.5 on the price of petrol and diesel, with the new orders taking effect Wednesday.

The new breakdown on fuel costs by the Energy Petroleum Regulatory Authority (EPRA) that took effect midnight Wednesday for instance shows a 53.3 percent tax charge on a litre of petrol in Nairobi.

This is as taxes and levies amount to Ksh.53.56 out of Ksh.100.48 in petrol retail costs.

Meanwhile, the underlying costs account for a mere Ksh.43.81 to include Ksh.31.42 as the weighted average cost of imported petrol and Ksh.12.39 as storage, distribution costs and oil marketers margins.

Besides Ksh.7.41 as VAT, other duties and levies charged include Ksh.20.92 as excise duty, Ksh.18 as the road maintenance levy and the now adjusted Ksh.5.40 petroleum development levy.

“The price fixing regime was commendable in controlling runaway prices, Kenyans are however missing out on the gains made from lower global crude prices as the government slap fuel products with higher and more taxes,” said Charles Wanguhu, a coordinator with the Kenya Civil Society Platform on Oil and Gas.

$100

As global prices now recover as more countries ease COVID-19 restrictions to aid the resumption in demand for fuel as more cars return to the roads and planes take-off, Kenyans could be staring at exorbitant fuel costs by the end of 2020.

Already, Murban crude – the specification of fuel from which Kenya imports its oil has more than doubled in price over the last three months having traded at Ksh.4668.41 ($43.63) per barrel on Monday in comparison to Ksh,2214.90 ($20.70) on April 16.

A resurgence in volatility among leading oil producers around the world and production controls by the wider oil exporting countries could see prices pick-up to near the dreaded $100 mark per barrel to translate to extremely high fuel prices on Kenyans.

Genghis Capital Senior Research Analyst, Churchill Ogutu now calls for a reversal in recent tax measures to spare Kenyans from the looming devastation in fuel costs.

“If recent ammendments could be reversed, we could see costs on fuel VAT for instance comes down. The government could also push to lower taxes and levies on fuel products to cushion Kenyans from higher petrol costs,” he said.

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Story By Kepha Muiruri
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