Consumers hit hard as fuel prices reach Sh110 a litre amid global surge

Motorists in Nairobi could soon be paying Sh110 per litre of super petrol with international oil prices expected to go up in 2018, sustaining a climb experienced in the course of 2017. Already, far-flung towns of Kenya such as Wajir and Mandera are paying more than Sh110 per litre of super petrol.

The Energy Regulatory Commission (ERC) last week reviewed fuel prices upwards, pushing pump prices higher.

It was the eight month in a row that the retail prices are inching upwards. This month, according to the ERC, monthly price capping, a litre of super petrol will retail at a higher maximum of Sh107.92 in Nairobi, while diesel will go for Sh96.96 per litre and Sh76.75 for kerosene. These higher prices were last seen in October 2014.

The energy industry regulator attributed the latest hikes to increase in price of crude oil, which touched a high of $70 per barrel (Sh7,105) towards the end of January.

Prices of crude oil are expected to go up in the course of this year, a trend that will be mirrored locally with fuel prices expected to further go with super petrol surpassing Sh110 per litre in Nairobi.

It will be higher in towns that are far flung from Mombasa, such as Mandera and Lokichogio where retail prices for the fuel mostly used by private motorists are retailing at Sh121 and Sh117 a litre respectively.

The International Energy Agency (IEA) said Tuesday that despite increase in production particularly from the US, growing global demand for oil could see the current high prices of crude sustained or even go up. The US is expected to further exploit its shale oil and IEA said it might surpass Saudi Arabia and Russia as the world’s top oil producers.

"The components of the oil market balance are dynamic and a lot can change in the next few months: the deteriorating situation in Venezuela is one obvious candidate, and the apparent buoyancy of the global economy could deliver higher demand growth than we currently anticipate. As a result, prices could be maintained at recent levels even as US production rises," said the Paris Based IEA.

Higher fuel prices already in place are a recipe for higher cost of living and Kenyans should brace themselves for a round of price hikes for basic consumer goods.

Poor urban households are already reeling from the effects of high cost of kerosene, used for cooking and lighting, that has over the two years gone up from Sh47 per litre in January 2016 to the current levels of Sh77 per litre in Nairobi.

Diesel, a critical fuel for transportation and manufacturing, guaranteeing that price changes are felt by everyone, is inching close to Sh100 a litre in Nairobi from Sh77 at the start of 2016.

"This upward streak has been occasioned by global trends, a phenomenon that is beyond individualized planned control. This situation is not peculiar to Kenya, but a shared global problem. This has been as a consequence of a sustained increase in the international crude oil prices from January 2016 to date owing to rising demand of refined petroleum products in the USA and China," said ERC Director General Pavel Oimeke in a recent statement on high fuel prices.

A factor that sustains high fuel prices is revenue for the Government, which between February 15 and March 14 will be earning over Sh39 for every litre of petrol consumed in the country.

While petroleum taxation in other markets is equally high, consumers feel that the difference is that these taxes are put to good use in the markets. But, Kenyans have to grapple with poor infrastructure, traffic jams and other factors that have a knock on effect not just on transport but the general cost of living.

According to a breakdown given by ERC last week, without the taxes, a litre of petrol would over the next one month be retailing at Sh68.76 per litre in Nairobi. The cost takes into consideration the price of the fuel on arrival to Kenya at Sh53.51 as well as prudently incurred costs by the transporters and the oil marketing companies.

Numerous taxes, however push up the cost ensuring that even if the country was gifted a month’s supply of super petrol, Kenyans would have to pay the Government Sh39.16 in taxes per litre consumed.

Excise duty and road maintenance levy are the highest at Sh19.90 and Sh18 per litre. Others are petroleum development levy (40 cents), petroleum regulatory levy (12 cents) and the railway development levy (74 cents).

The high local pump prices that are largely due to susceptibility of Kenya to factors that are beyond its control particularly the volatility of the international crude oil prices have in the past seen the Government contemplate measures geared at cushioning the market against sudden surge in oil prices.

Projects such as the strategic fuel reserves have been mooted and would have entailed setting up large storage facilities that would see the country stock up when prices in the international markets are low and help stabilise prices when oil prices go up.

This, however, amounted to nothing owing to differences over which Government agency would manage the reserves, with the front runner – the National Oil Corporation (NOCK) – appearing to be a competitor rather than an in-between for the industry and market.

NOCK has also been struggling to fulfil one of its mandates to stabilise supply and pricing of petroleum products owing to a commercial approach to the market as well as dismal capacity.

In its latest attempt, the Government plans to set up a Sh10 billion stabilisation fund, a sort of hedging tool, which will cushion against sudden increase in crude oil prices by absorbing some of the costs in case of higher than anticipated crude oil price surges.

The Fund, which has been in plans since 2015, is expected to start operating in July 2018.

High oil prices are also likely to see an increase in electricity bills. Kenya depends on thermal power producers to bridge electricity generation gaps when water levels at key hydroelectricity systems are down. The Government has already warned of a likelihood of the current dry spell persisting.

This might mean further reliance on the thermal producers, whose cost of acquisition of fuel used for power production is directly borne by power consumer without any form of cushioning by the power industry.

The cost, which is captured in the monthly power bills as the Fuel Cost Charge, is currently at a four year high of Sh4.51.

The spike in retail prices of fuel will also see inflation going up. Inflation stood at 4.83 per cent in January, a slight jump from 4.5 per cent in January. The increase was due to higher food prices that have started going up after a dip in October and December following the short rains.

Higher fuel prices are likely to exert more pressure on the cost of living. Senior officials from the National Treasury have in the recent past said they expect inflation to remain at around five per cent in 2018.