Petrol price driven up by suspect deal

A flawed tendering process which led to overpricing of freight charges could have led to Kenyans paying a higher price for their petrol.

While the industry average for importation of crude oil has been $0.90 per barrel, the winners of the September tender charged $3.126 and $2.83 per barrel.

It is only after protest by industry players that the ministry hastily cancelled the tender awarded to Essar Energy and Gulf Energy Ltd.

And just two days after the cancellation, Gulf Energy Ltd emerged the winner after retendering at $1.475 per barrel, half its earlier price.

“You will note a huge difference between the bids received for subject tenders and the winning bids for previous tenders.

‘‘In view of this, we recommend that you hold the award of these tenders and request that you call for a re-tender of the same.

"This will relieve consumers from paying exorbitant fuel prices if the subject cargoes will land in Kenya basis the premiums received,” read part of a letter from the Oil Industry Supply Coordination Committee to the Energy PS Patrick Nyoike.

In his defence, Mr Nyoike blamed junior officers in his ministry for the mess, but imposed no sanctions on the officers or the companies involved.

On Sunday, the Energy Regulatory Commission cited increases in freight costs as the key contributor to the Sh5-6 per litre increase in pump prices. (READ: Petrol and kerosene prices up by Sh6)

Notable is the fact that while the price of crude oil marginally rose by three per cent the average cost of imported petrol rose by over 12 per cent, an indication on how the huge freight cost played to increase the overall cost.

Industry players fault the ministry for allowing irregularities within the procurement system thus enabling bidders (oil marketers) to quote high freight costs for the import of crude oil.

Freight costs form part of what ERC considers alongside international crude oil prices and taxes in calculation of its recommended monthly prices.

“The procurement is done by the ministry of Energy. We work with what the ministry has gotten as a tender result,” said ERC Director General Kaburu Mwirichia.

The sudden change of price in September points to possible mischief within the tender system which could have informed increases in pump prices even in the past.

The Consumer Federation of Kenya’s (Cofek) now wants Parliament to review the ERC Act to give the commission a wider mandate in the procurement process. Cofek says this will seal off opportunity for oil marketers to inflate import costs at the expense of consumers.

“Parliament should review the ERC Act to give it a wide mandate outside just putting caps on oil prices. The commission is not relevant to consumers if it cannot address the broad repercussions of its decision on pump prices,” said Cofek secretary general Stephen Mutoro.

Cofek had earlier moved to court to oppose the decision by the ministry of energy to award the Kenya Petroleum Refineries Limited (KPRL) monopoly under the new refinery regulations which elevated the facility to a merchant status since July this year.

The consumer watchdog argued that it had “given oil marketing companies an opportunity to make profits at the expense of end consumers”.

KPRL is currently faced with a Sh119 million claim from KenolKobil for failing to issue a letter of credit for the company to facilitate the import of 80,000 tonnes of crude oil in August resulting in losses for the oil marketer.

With the claim on the way in addition to interest piling up on the Sh21.2 billion loan that the facility acquired from Standard Chartered bank in June this year, consumers are likely to be hard pressed going forward should KPRL strive to recover these costs from sale of finished fuel products.