Energy Regulatory Commission price cuts handing oil cartels huge profits

Last week, the Energy Regulatory Commission (ERC) cut fuel prices by about 3 per cent.

In the new changes, kerosene, super petrol and diesel decreased by Sh4.94, Sh4.79 and Sh3.67 respectively. In Nairobi, Super petrol is retailing at Sh102.01, diesel Sh90.85 and kerosene Sh71.37.

Even with these price cuts, experts warn that ERC could in fact be deliberately or otherwise handing hefty profits to oil marketers at the expense of consumers and investors.

ERC started the pricing of fuel in 2010, ostensibly to protect investors and consumers.

At the time, it was understood that while international oil prices often hit rock bottom, marketers did not pass the benefits of low prices to consumers but were quick on the pedal to increase retail prices when crude prices went up.

Through the formula, ERC undertook to regulate oil prices in line with what happened at the international markets.

Today, however, ERC does not seem keen to follow its own wisdom.

Experts have raised concerns that ERC’s unwillingness to go the whole hog has left oil marketers salting away the profits even as international crude prices continue to tumble. Oil has now halved in value since June, with analysts saying this tumble in global crude oil prices could go below $60 (Sh5,430) per barrel.

Early in the week, crude was quoted at Sh5,300, ($59) per barrel, equivalent to 159 litres, the lowest levels since May 2009 while the prices announced by the energy regulator Sunday are only comparable to March 2011 pricing – when a barrel of crude sold for Sh9600 ($114).

The Organisation of Petroleum Exporting Countries (Opec), the cartel responsible for one-third of global oil production, said it would keep its self-imposed output ceiling at 30 million barrels per day. This sent already-low oil prices down even further.

There is little if any hope, however, because according to ERC, Kenyans can only not expect any significant drop in fuel prices till February.

Analysts find fault with this argument, saying the regulator should be seen to act because there is always a direct correlation between prices of crude oil and refined products.