How regulation failure is exposing Kenyans to illegal fuel charges

Failure by the energy industry regulator to enforce price control guidelines is partly to blame for the ever-rising cost of fuel in the country.

Energy Regulatory Commission (ERC), the body tasked with establishing fuel prices, says it lacks the capacity to police adherence to the guidelines by all the retailers.

It has also acknowledged the existence of legal loopholes that some retailers exploit to charge above the recommended price.

“We cannot reach every petrol station, hence we rely on feedback from the public to establish cases where fuel is retailing above the limits we have set,” ERC director general Kaburu Mwirichia told Business Sunday.

Last year, a fuel price capping model was introduced in the oil industry with the aim of cushioning consumers from soaring fuel prices.

ERC was given the legal mandate to enforce the price control rule.

As a deterrent to overpricing, the Energy Act 2006 imposed a Sh1 million fine on any retailer who quotes prices above the recommended prices in addition to withdrawing operating licences from such retailers.

But the ERC admits it has yet to resort to enforcing the rule to check reported violations.

“What we have caught are cases where retailers are confused over what price they should quote. So far no licences have been withdrawn,” Mr Mwirichia said.

Experts say the confusion provides the perfect legal loophole for retailers to exploit and charge above the recommended price.

In publishing the recommended prices, the ERC has been citing 50 towns. When it talks of Nairobi, the assumption is that the prices apply to retailers operating within the city and surrounding towns.

But this practice ignores the fact that Rongai, Kiserian, Athi River, Ngong, Kiambu are geographically outside Nairobi. 

And because there is a difference in prices between Nairobi and Machakos, retailers in Athi River town and Syokimau, for example, might prefer to use the Machakos prices rather than those for Nairobi.

The confusion is said to grow the further one goes from the main towns.

Through a price formula, the regulator expects retailers to adjust their pump prices depending on how far their stations are from the nearest major town.

Retailers, especially the independent oil marketers, who source their products from the big oil dealers, argue that given that there is no control of wholesale prices the rule of “nearest major town” is more theoretical than practical.

A case in point is when independent oil marketers can source fuel at a cheaper rate from a town far from the nearest major town, he would have to factor in the added distance, thus creating a price differential.   

Analysts have criticised this system, saying that the regulator should turn to a more effective approach including ensuring that all towns are listed in the price schedule as a way of eliminating chances of unfair pricing or sticking to the 47 counties.

According to Mr Joseph Kieyah, a senior policy analyst, it is not in all situations that the pricing model will work to protect consumer rights.

“The price formula is set with the assumption that the regulator understands the market whereas that may not be the case. It is important that ERC has the right information and then it can address the issue of capacity to ensure full implementation of the right pricing,” said Mr Kieyah.

ERC relies on distances gazetted by the Ministry of Roads in calculations of such distance in order to deter dishonest retailers from taking advantage of consumers by sourcing fuel from the furthest depots in order to expand their margins.

Since the introduction of the price caps 11 months ago, ERC says pump prices have gone up by 32 per cent for super, 30.7 per cent for diesel and 25 per cent for kerosene.