Why fuel prices ‘will remain high until March’

Sunday January 17 2016

A worker adjusts fuel prices on June 15, 2015 at a pump station in Eldoret. A time lag of about one-and-a-half months between when an order for petroleum products is placed and its actual receipt at the local depots is the main reason motorists will pay higher prices for fuel at a time when crude prices are at their lowest in 12 years. FILE |

A worker adjusts fuel prices on June 15, 2015 at a pump station in Eldoret. A time lag of about one-and-a-half months between when an order for petroleum products is placed and its actual receipt at the local depots is the main reason motorists will pay higher prices for fuel at a time when crude prices are at their lowest in 12 years. FILE | NATION MEDIA GROUP

By IMMACULATE KARAMBU
More by this Author

A time lag of about one-and-a-half months between when an order for petroleum products is placed and its actual receipt at the local depots is the main reason motorists will pay higher prices for fuel at a time when crude prices are at their lowest in 12 years.

On Thursday, the Energy Regulatory Commission (ERC) reduced the prices of diesel and super petrol by less than Sh2, against high expectations that there would be a price cut of about Sh10 a litre, going by the downward trend in crude prices.

The regulator has come out to defend its move, saying that the full benefit of the current crude prices would be felt in March and subsequent months.

CRUDE PRICES HISTORIC LOW

Crude prices touched a historic low at $29 a barrel for US benchmark crude West Texas Intermediate while the European Brent crude traded at a low of $30 a barrel. The products are for February deliveries.

“The main issue here is the lag of a maximum of 45 days between when we order for the products and when they are received in the country.

Therefore, we cannot immediately pass any benefits from the drop in crude prices,” Mr Edward Kinyua, ERC’s acting director for petroleum, told the Sunday Nation in a telephone interview.

In addition to the time lag, fuel products are subjected to heavy taxation and dealers’ margins, denying consumers the benefit of low prices when the cost of crude oil is on a free fall.

Data from ERC shows that, for instance, the price of a litre of super petrol comprises Sh48 in taxes and levies, wholesale and retail margins and distribution costs.

The taxes and levies include excise tax, road maintenance levy, petroleum development levy and petroleum regulatory levy which is remitted to ERC.

A litre of diesel attracts Sh38.01 in taxes and levies, distribution costs and wholesale margins while kerosene is levied at Sh13.34 per litre for the same.