Manufacturers, matatu operators go mute after fuel prices fall sharply

When the government introduced 16 percent Value Added Tax on fuel in September 2018, transport costs, including those of matatus, shot up instantly.

The Motorists Association of Kenya even urged its members to keep off roads until they “get fair fuel prices in Kenya”.

This month, the Energy and Petroleum Regulatory Authority (Epra) released the latest guidelines that reflected the international slump in crude oil prices.

Pump prices dropped by the biggest margin since Kenya started controlling prices in 2010, with super fuel being cheaper than diesel for the first time.

Manufacturers who have always ranked transport as a major cost of production, with every change in fuel costs translating to what customers pay for commodities, have demonstrated a loud silence over the relief, which is even expected to increase next month.

Matatu owners now say even a Sh20 per litre drop in diesel prices will be hard to translate to each passenger given that the businesses are badly affected by the Covid-19 pandemic.

Matatu Owners Association chairman Simon Kimutai told the Sunday Nation that apart from being depressed by the pandemic, the matatu business barely makes any return, which he said makes it hard to pass down such benefits when fuel prices drop.

“We are making crazy losses now because there is no movement of passengers. We are not even able to meet operations costs and if we consume, say, 20 litres now to carry 60 people, the net gain there from fuel is Sh200, how do we divide that to 60 people? Fuel is not the only cost we have, there is insurance, wear and tear as well the capital investment itself, which depreciates with time. Matatus increasing fares during rush hours is just normal because every business has its peak season, just like food becomes more expensive during Christmas,” Mr Kimutai said.

His argument has been a common line among producers, who have always used incentives to prop up profits and justify price increases whenever any of their factors of productions are affected upwards.

The 2018 VAT on petroleum products, which was later slashed to eight per cent after matatu operators on Nairobi routes increased fares by Sh20, was a perfect example.

Many stakeholders remain pessimistic that traders will pass down any benefits to consumers, a phenomenon that is becoming normal in Kenya, where the free-market economy has left consumers at the mercy of traders and manufacturers to determine when benefits can be passed down (if ever).

Consumer Federation of Kenya (Cofek) boss Stephen Mutoro said the Kenyan consumer is suffering from poor government regulation and dishonest business practices by market players.

He believes there is a need for stronger advocacy supported by market policing that ensures every benefit accruing from production is passed down to consumers.

“The failure to pass down these benefits is not anything around economics, it is impunity and lots of regulatory gaps. Epra, which purports to regulate prices, cannot even rate the impacts of the price changes on the market. There is no government body that polices the market on behalf of consumers to even ensure that the recommended retail prices are adhered to. None of the regulatory bodies have consumer representation and that is why no one is concerned about how the consumers will benefit,” Mr Mutoro said.

The scenario also plays out when the government gives incentives like duty-free imports. Greedy businessmen, corrupt officials and middlemen make the greatest benefits from the various tax-free commodity imports meant to ease economic pressure on the public.

While importing subsidised fertiliser in 2018 was marred by illegal imports and the existence of fake fertiliser, political interest reared its ugly head in the sugar imports in 2017.

It took threats of jail for traders to reduce the price of maize flour after millers benefited from subsidised maize and remained hesitant to reduce retail prices.