Kenyans will pay an extra Sh4.45 per liter of fuel if a proposal in study commissioned by the energy regulator is adopted, triggering fears over pressure on cost of living measure.
The study by consultants, Kurrent Technologies and Channoil Consulting Ltd, is proposing an increase in margins offered to oil marketing companies be increased to Sh12.21 per liter from the current Sh8.19 per liter for retailers and the wholesale margin to be increased from Sh4.17 to Sh4.6.
The margins cater for oil dealers’ costs and profits and are part of items that make up the monthly review of pump prices.
“The proposed Kenya retail margin is Sh12.21 per liter comprising of retail investment margin of Sh7.79 and a retail operations margin of Sh4.42,” said the consultants.
This would push the oil marketers’ margin from the current Sh12.36 per liter to Sh16.8 per liter.
If the proposed margins are adopted, it will mark the first time in five years that they have been raised. It could trigger a fresh increase in the price of fuel, marking a blow to consumers plagued by costly petrol and diesel prices in following tax increases on the products.
Fuel prices are currently retailing at Sh188.84 per liter of petrol in Nairobi, while diesel and kerosene are retailing at Sh171.6 and Sh161.75 per liter respectively.
If the new margins are applied on this month review, the cost of petrol would have increased to Sh193.29 per liter at Sh176.05 while kerosene would rise to Sh166.2.
Fuel prices have a big effect on inflation in Kenya, which relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.
The push for higher compensation to the marketers comes in a time when fuel prices in Kenya remain the highest in the East Africa region, partly blamed on increased taxation of petrol and diesel.
Over the last year, the government has increased Value Added Tax (VAT) on fuel to 16 percent from 8 percent and hiked the road maintenance levy to Sh25 up in July up from Sh18 per liter.
The consultants were picked last year to study the costs incurred along the petroleum products supply chain in Kenya and inform a new pricing formula that will be applied by the government.
The oil marketers’ margin is one of four major cost components included in the pricing of fuel. The others are the landed cost, storage and distribution costs and taxes and levies.
The approved margin could however be lower than what has been proposed, as happened in 2019. The consultants who were picked at the time proposed a retail margin of Sh8.61 but State officials settled on a compromise of Sh8.19.
The two firms were hired by the Energy and Petroleum Regulatory Authority (Epra) to undertake a Cost of Service Study in the Supply of Petroleum Products (COSSOP).
The push for the study came amid pressure from oil marketing companies who argued that their costs had gone up rapidly over the last five years when the current margins were set.
Fuel is one of the most important commodities in the country’s economy. An increase in prices of the product affects other key sectors including transport, aviation, agriculture, hospitality, construction, power generation and manufacturing.
Fuel prices have shot up significantly over the last 18 months due to an increase in the global price of the product, a weak shilling, increased taxation and the switch to a restricted import model that relies on three firms from the gulf from the previous open tender that was open to all dealers.
A liter of petrol was retailing at Sh177.3 in Nairobi in January last year, while diesel and kerosene were retailing at a maximum price of Sh162 and Sh145.94 per liter respectively.
The prices of the three fuel products have since increased by 6.3 percent, 5.9 percent and 10.8 percent respectively.
The consultants have also recommended the government to cap wholesale prices of fuel to prevent exploitation of small retailers through amendment of the Petroleum Pricing Regulations, 2022.
“If OMCs cannot manipulate the wholesale price upwards there will be less incentive to stock-pile product at times of the month when cash is not required,” they argued in their draft report.
One of the recommendations that could see consumers pay a fairer price for fuel is the proposal to end the controversial government-to-government arrangement of importing fuel from three Gulf State-owned oil companies.
The G-to-G deal is set to expire in December this year. The consultants have revealed that consumers are paying an additional Sh2.70 per liter of fuel under G-to-G than what they would have paid under the Open Tender System (OTS).
“The OTS, through monthly competition and award of supply contracts, ensures price competition between suppliers, which in turn serves to ensure that supply premiums remain competitive. The OTS mechanism is therefore preferred to single supplier contracts,” they said.
