Kenya's retail fuel pricing mismatch poses more questions

By Macharia Kamau | Published Tue, January 30th 2018 at 09:17, Updated January 30th 2018 at 09:24 GMT +3

NAIROBI, KENYA: In November 2011, the retail price of petrol hit an all-time high of Sh124 per litre.

The increase was largely due to high prices of crude oil, whose price during the same month stood at $110 per barrel.

The price of crude had been on a rally then, following heavy demand from countries like China and the US.

A similar scenario is at moment playing out. Local retail prices of petroleum products are inching towards to highs seen in 2011, with a litre of super petrol retailing at Sh106 in Nairobi.

This time however, it is hard to attribute the high prices to a rise in cost of crude oil. While the price of crude oil has increased over the last two years, it is nowhere near the highs of $125 (Sh12,750) per barrel in 2011 and $145 (14,800) per barrel in 2008.

The last time local retail price of super petrol hoovered around the same levels as the current prices (Sh106) was in 2014, when throughout the year super petrol was selling at about Sh110 per litre.

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For almost the whole of 2014, crude oil sold for over $100 (Sh10,200) per barrel.

A barrel of crude was going for $64  (Sh6,528) on average in December 2017, which is the price Energy Regulatory Commission (ERC) used in determining retail prices for petroleum products this month.

Currency volatility

This points to a mismatch in the pricing of petroleum products, considering that local retail prices are almost at par with prices in 2011, despite crude oil being lower now than they were in 2011.

The energy industry regulator has said the retail prices of fuel locally mirror what has been taking place in global markets, attributing the steep climb largely to increase in crude oil prices since the start of 2016.

Factors pushing up prices of crude oil include growth in demand and reduction of oil production among the Organisation of Oil Producing Countries (OPEC), which wanted a rise on oil prices, whose export is a mainstay for these countries.

ERC Director-General Pavel Oimeke said in addition to the price of crude oil, the volatility of the local currency against the dollar could also be a factor in the rise of retail prices of fuel.

Also factored are prudently incurred costs of delivering from the source to fuel to the stations, which include transport and storage as well as wholesale and retail margins.

“This upward streak has been occasioned by global trends, a phenomenon that is 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,” he said in a statement.

“In Kenya, pump prices have also been affected by increases in local taxes and the depreciation of the shilling against the dollar.”

The shilling has held steady against the dollar in the course of last year, according to data from the Central Bank of Kenya, even posting slight gains in the course of 2017 despite the elections.

The local unit traded at around Sh103 against the greenback throughout 2017 and only touched a low of Sh104 in January 2017.

It is, however, a weaker position than the under Sh102 that it exchanged against the dollar in 2016.

Oimeke, however, noted that while the country has experienced a steep rise in fuel prices over the last two years, Kenyans are better off than many other oil importing countries.

He noted a litre of petrol is retailing at Sh120 in South Africa, Sh14 more than Nairobi residents are paying for similar quantity.

“In comparison to other oil importing countries, Kenya remains competitive in the pricing of petroleum products,” he said.

“In the latest price review window, regionally, a litre of petrol in Kenya, Tanzania, and Inland South Africa retails at an equivalent of Sh106, Sh103 and Sh120 respectively.”

He added: “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 an equivalent of Sh94 in Nairobi, Sh96 in Arusha, Sh197 in London and Sh177 in Paris.”

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