Progress in quest for lower fuel prices

In 1991, when oil prices skyrocketed unexpectedly, Kenya and other nations went deep in the throes of a recession.

That has been repeated over the years. In fact, the evolution of oil prices over the past 50 years feels like a rollercoaster ride with economists attributing this volatility to factors including the shifting demand from developing countries.

OIL PRICES

The past five months have seen a steady increase in oil prices in Kenya. This upward streak has been occasioned by global trends — a phenomenon beyond individualised planned control.

The country has witnessed a sharp increase in the cost of petroleum fuels, whose pricing takes into consideration the original price of the product, inland and maritime transportation, customs, duties, taxes, insurance, currency conversion, crating, handling and payment fees.

This situation is not unique to Kenya. It has been the consequence of a sustained increase in the international crude oil prices since January 2016 owing to rising demand for refined petroleum products in the US and China.

The prices are also affected by production restrictions by the Organisation of Oil Producing Countries (Opec) and the geopolitics of the petroleum producers.

In Kenya, the pump price has also been affected by increases in local taxes and the depreciation of the shilling to the US dollar. Notably, the adverse economic effect of the recent higher oil prices on importing developing countries such as Kenya is severer than for oil exporting and developed countries.
GULF

Kenya competitively procures all its petroleum from the international markets of the Arabian Gulf and the Mediterranean areas. The lead time for these products is between 30 and 45 days.

This means the price during the month is derived from the prevailing crude oil prices in the international market the previous month.

The cost of crude oil in the international market plays a critical role in the determination of the final prices for refined products in Kenya. For instance, from February 2013 to January 2016, crude oil price had a constant decline, from a high of $115.40 per barrel to a low of $29.50, a 74.4 per cent fall.

The trickle-down effect of this was felt in the country as prices of petroleum products reduced.

Accordingly, the lowest pump price for super petrol was recorded in April 2016, at Sh80.71 per litre, while it was Sh65.70 for diesel in March 2016 and Sh39.62 for kerosene in February 2016 — aggregate reductions of 31.4 per cent, 38.8 per cent and 55.3 per cent, respectively.

However, after January 2016, crude oil prices have been on an upward trend, reaching a high of $64.85 per barrel last December, an aggregate increase of 119.8 per cent. This has been accompanied by a corresponding increase in pump prices over the subsequent months.

In comparison to other oil importing countries, however, Kenya remains competitive in the pricing of petroleum products.
GROWTH
In the latest price review window, a litre of petrol, retailing at Sh106 in Kenya, is going for an equivalent of Sh103 and Sh120 in Tanzania and inland South Africa, respectively.

Internationally, a litre of petrol in London, Munich and Paris retails at an equivalent of Sh192, Sh177 and Sh176, respectively. A litre of diesel retails at Sh94 in Nairobi and an equivalent of Sh96 in Arusha, Sh197 in London and Sh177 in Paris.

The fact that affordable, safer and accessible energy is at the core of our economic growth cannot be over-emphasised.

The government has been working to stabilise pump prices and create predictability to consumers.

Among the factors that lead to the high prices is demurrage costs, believed to be occasioned by poor vessel planning, slow evacuation of fuel and storage hitches at import terminals.

The energy sub-sector agencies are expanding the capacity and efficiency of the pipeline and increasing storage space for petroleum products.

Also, there is progress towards increasing capacity and efficiency at Kenya Pipeline Company (KPC), Kenya Ports Authority and Kenya Petroleum Refineries Limited (KPRL) in Mombasa.

We believe that this will eventually translate to lower costs of fuel to the local consumers, and hence contribute largely to the realisation of Vision 2030 and the key four focus areas of the government.

Mr Oimeke is director-general of the Energy Regulatory Commission (ERC). [email protected] Twitter: @Paveloimeke