Sunday, December 19, 2010

Poor Kenyans bear the brunt of laws regulating fuel prices

By KENNEDY SENELWA [email protected]

Low income earners are bearing the brunt of price regulation in the oil sector. The cost of kerosene and diesel went up but petrol declined, while margins for independent fuel retailers were also eroded.

Kenya in 1981 introduced skewed taxation to penalise petrol as a discretionary item, encourage use of diesel as the economy driver and kerosene as poor man’s fuel.

Earlier taxes on oil products were levied uniformly across board. According to Hydrocarbons Management Consultancy, taxation of oil products is fixed in shillings per litre leading to Government collecting about Sh7.66 on kerosene, Sh30 on petrol and diesel Sh20.

Low margins

“People who depend on kerosene for cooking and lighting have to pay more as price escalation has wiped out element of skewed taxation on the commodity,” said Hydrocarbons’ lead consultant, Mr Robert Shisoka.

He said capping reduced petrol prices in Nairobi but the cost of manufacturing is unlikely to fall due to diesel being expensive. Most industries use diesel.

Cost of super petrol in Nairobi had risen to about Sh100, but declined to Sh94.03 with the cap on prices. Diesel went up by at least Sh2 a litre to Sh87.45. Kerosene price shot up to Sh75.83 per litre.

The Energy (Petroleum Pricing) Regulations 2010— signed by Energy Minister Kiraitu Murungi — were issued as Legal Notice Number 196 and published in Kenya Gazette Supplement of December 3.

Kiraitu said consumers are expected to buy fuel at predictable prices, with Energy Regulatory Commission (ERC) setting the maximum wholesale and retail petrol, diesel and kerosene prices.

“Price control has a two-fold aim of protecting consumers and ensuring that industry players recover prudently accrued costs and make reasonable margins,” he said.

Under the new regime, fuel prices inland are determined by distance from Mombasa which has the refinery and the port, with consumers in Eldoret and Kisumu bearing the heaviest burden.

A litre of super petrol in Mombasa retails at Sh91.08, Eldoret (Sh96.19) and Kisumu (Sh96.25). A litre of diesel in Mombasa retails for Sh84.51, Eldoret (Sh89.61) and Kisumu (Sh89.66).

It has changed the previous structure where fuel prices were cheaper in western Kenya and expensive in Nairobi. The Kenya Independent Petroleum Dealers Association (Kipenda) warns of foreclosures and job losses.

“Banks are likely to foreclose on independent retailers who borrowed money but are unable to pay as margins have declined to less than Sh3 while overheads are high,” said Kipenda chairman, Keith Ngaruchi.