Kenyans will pay an additional Sh4.45 per liter of fuel if the proposal in the study commissioned by the energy regulator is adopted, sparking fears over pressure on the cost of living.
A study by consultants, Kurrent Technologies and Channoil Consulting Ltd, proposed an increase in the margin offered to oil marketing companies increased to Sh12.21 per liter from the current Sh8.19 per liter for retailers and the wholesale margin increased from Sh4. .17 to Sh4.6.
Margin covers the costs and profits of oil dealers and is part of what makes up the monthly review of pump prices.
“The proposed Kenyan retail margin is Sh12.21 per liter which includes retail investment margin of Sh7.79 and retail operating margin of Sh4.42,” the consultants said.
This will push oil marketers’ margins from Sh12.36 per liter to Sh16.8 per litre.
If the proposed margin is adopted, it will mark the first time in five years that it has been raised. This may lead to an increase in fuel prices, which in turn affects consumers who are affected by expensive petrol and diesel prices due to the increase in taxes on these products.
Fuel prices are currently selling at Sh188.84 per liter of petrol in Nairobi, while diesel and kerosene are selling at Sh171.6 and Sh161.75 per litre.
If the new limit is implemented in this month’s review, the cost of petrol will increase to Sh193.29 per liter at Sh176.05 while kerosene will rise to Sh166.2.
Fuel prices have a major impact on inflation in Kenya, which relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.
The push for higher compensation for marketers comes as fuel prices in Kenya remain the highest in the East African region, partly blamed on increases in petrol and diesel taxes.
Over the past year, the government has increased the Value Added Tax (VAT) on fuel to 16 per cent from 8 per cent and raised the road maintenance levy to Sh25 up from Sh18 per liter in July.
The consultant was selected last year to study the costs incurred in the supply chain of petroleum products in Kenya and inform the new pricing formula to be applied by the government.
The oil marketer’s margin is one of the four main cost components included in fuel prices. Others are landed costs, storage and distribution costs and taxes and levies.
The approved margin may be lower than proposed, as was the case in 2019. The selected consultant at the time proposed a retail margin of Sh8.61 but state officials settled on a compromise of Sh8.19.
The two companies were hired by the Energy and Petroleum Regulatory Authority (Epra) to carry out the Cost of Services in the Supply of Petroleum Products (COSSOP) Study.
The push for the study comes amid pressure from oil marketing companies who say the costs have risen rapidly over the past five years when the current limits were set.
Fuel is one of the most important commodities in the country’s economy. The increase in product prices affects other key sectors including transport, aviation, agriculture, hospitality, construction, power generation and manufacturing.
Fuel prices have risen significantly over the past 18 months due to rising global prices of products, a weak shilling, increased taxes and a switch to a restricted import model that relied on three companies from the Gulf from previous open tenders. which is open to all dealers.
A liter of petrol was sold at Sh177.3 in Nairobi in January last year, while diesel and kerosene were sold at a maximum price of Sh162 and Sh145.94 per litre.
The prices of the three fuel products have increased by 6.3 percent, 5.9 percent and 10.8 percent respectively.
The consultant also advised the government to cap the wholesale price of fuel to prevent exploitation of small retailers through the amendment of the Oil Price Regulation, 2022.
“If OMCs cannot manipulate wholesale prices up, there will be less incentive to stockpile products at times of the month when cash is not needed,” he said in his draft report.
One of the recommendations that could see consumers pay lower prices for fuel is a proposal to end the controversial government-to-government rule of importing fuel from the three Gulf state oil companies.
The G-to-G deal is set to expire in December this year. Consultants have revealed that consumers pay an additional Sh2.70 per liter of fuel on G-to-G than what they would have paid under the Open Tender System (OTS).
“OTS, through monthly competition and awarding supply contracts, ensures price competition between suppliers, which can also ensure supply premiums remain competitive. The OTS mechanism is preferable to single supplier contracts,” he said.
