Oil marketers renew calls for fuel pricing formula review

Oil marketers renew calls for fuel pricing formula review

Players in the fuel sector have urged the government to review the fuel price formula currently in use by the Energy Regulatory Commission (ERC).

Industry lobby group, the Petroleum Institute of East Africa (PIEA), argues the six year old pricing formula has failed to anticipate investment made by oil marketing companies (OMCs) in expansion.

Of concern is the fact that OMCs continue to invest in expansion with their margins capped.

“If you invest a Sh100 million in your filing station and have the best facilities according to standards, there is no formula that allows you on a return on investment,” PIEA chairman Powell Maimba said on Tuesday.

With the price control, oil marketing companies earn a fixed margin of Sh7 for every liter of fuel sold.

PIEA however said the margin is only enough to fund day to day operational costs with some players placed at a disadvantage as they seek to compete.

Mr Maimba said the pricing mechanism needed to be more predictable to allow firms to plan better.

“We deal with three exchange rates, sometimes four. You have the exchange rate your buying product at, you have the exchange rate the bank is selling you forex at…So when ERC comes with the exchange rate average of the last month and you’re receiving the goods now… it becomes a little bit unpredictable,” he stressed.

The Energy regulatory commission, introduced fuel price controls in December 2010, in a bid to shield consumers from cartel like behavior witnessed in the petroleum retail market.

Mr Maimba spoke during the release of the industry’s first quarter report which shows Total Kenya still holds the largest market share in Kenya at 16 percent closely followed by Vivo Energy and Kenol Kobil at 15.9 and 15.4 percent respectively.

 Additional reporting by Sophie Kinoti

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