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Consumer body, FKE censure regulator’s new petrol pricing

BUSINESS
By | May 20th 2012

By Macharia Kamau

This week, the Energy Regulatory Commission increased retail prices for super petrol and kerosene against the expectations of many.

This renewed  calls for a re-evaluation of the pricing formula while some players called for the scrapping of the price controls.

The price of crude oil has in the recent past been on a decline, going down to $121 a barrel in April, up from $126 per barrel in March while the local currency has been fairly stable against world’s major currencies since the year began, exchanging at Sh83 on average.
These two factors – high crude oil prices and a weak shilling – have in the past been cited as the two major reasons for a hike in local retail fuel prices.

ERC instead promised reprieve to consumers in its next price review mid June arguing that the stability in the shilling and lower price of crude would be factored in.

But this has not been the case going by the prices outlined by the regulator last week.
“In the last few weeks, there has been a downward trend in the price of crude and refined petroleum products in the international markets. In addition, the local currency has continued to be relatively stable against the US dollar. This is expected to have a positive impact in the next price review,” reckoned Kaburu Mwirichia, Director General ERC in a statement on Saturday.

Market fundamentals
However, in the price guide issued Monday last week, the energy industry regulator increased the retail price of super petrol in Nairobi by Sh2.63 to Sh121.13 a litre up from Sh118.50.  Kerosene went up by 72 cents to Sh87, up from Sh86.28 in April.

It, however, reduced the price of diesel but by a marginal 36 cents to Sh108.44, from Sh108.80. The new prices will be in place between May 15th and June 14th.

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The new prices for super petrol are close to a historical high of Sh124 seen in December 2011 and this does not sit well with the Consumer Federation of Kenya (Cofek) that said ERC has been playing a mind game with the public.

“ERC has increased retail prices of super petrol over the last two months by Sh10. In a span of just 60 days, that is a steep rise by any standard,” read a Cofek statement in part. “Its experiment on fuel price capping has failed considerably... the industry is still not well regulated and ERC has been fixing prices to cover up. They have just been playing mind games with the consumers.”

A similar opinion was voiced by the Federation of Kenya Employers, who called on the Energy Minister to gazette a notice stopping continued implementation of the price control laws and instead let market forces determine pricing of fuel in the country.

Jacqueline Mugo, FKE Chief Executive Officer said FKE is advocating for an end to regulations of petroleum prices, citing that the system was doing more harm than good. “They have denied consumers the benefit of competition. This in essence is a cartel created by the law,” said Mugo.

“Previously petrol stations charged different rates, which was to the benefit of business and consumers. These rates allowed for competition, which brought down general fuel prices.”
However other quarters are of the opinion that ERC’s price increase for petrol and kerosene were justified.

Murimi Kareithi, an economist, noted that three things might have influenced prices of super and kerosene going up. These are the tendering process where oil marketers bidding to import the petroleum on behalf of the industry use the previous month’s prices, high transportation cost (using the road) and a slow process of discharging products at the Kipevu Oil Storage Facility.

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