Chirchir queries use of parallel exchange rate on pricing of fuel

Energy CS Davis Chirchir. [Samson Wire, Standard]

Energy and Petroleum Cabinet Secretary Davis Chirchir has raised questions on the prices of fuel announced on Thursday by the Energy and Petroleum Regulatory Authority (Epra).

CS Chirchir, while speaking yesterday during the launch of the Energy Statistics Report for the year ended June 2023, said oil prices should be pegged on the US dollar exchange rate published by the Central Bank of Kenya (CBK) and questioned why Epra had used a parallel dollar rate for procurement of the country’s oil products.

“Is the exchange rate really 157? Should we employ 157?” he posed.

In Thursday's price guidelines, Epra indicated an exchange rate of Sh157.52 to the dollar for the month of November. The average rate on November 14 was Sh151.83 to the dollar as published by CBK.

Chirchir said the ministry will force the industry to pay back any such overpayment on this month's fuel consignment, adding that pricing the dollar at 157 meant that the pump price reduction was not as large as expected.

Trading of petroleum products in the international markets is denominated in dollars, and an exchange rate is applied to convert the dollar to Kenya Shilling during the computation of local prices.

The CS was however careful not to squarely place the blame on Epra. He said that while the regulator had done the right thing by computing the exchange rate using an average of seven commercial banks, it is the banks that seem to be having questionable exchange rates.

“But because everybody is in this market to make money, we would like to have a win-win situation where we don’t allow the banks and some of the OMCs (oil marketing companies) to take…We must really protect the consumers.” 

“What Epra will do today as an independent regulator, because I am not here to give directives to an independent body, will be to write to CBK.

"Central bank will write back to us or to Epra to confirm whether the rate was Sh157, or the rate should be Sh153, and we’ll employ that rate that we get from the bank going forward.”

 And should the Central Bank write back to EPRA quoting a lower exchange rate, the CS says consumers must be refunded.

“What do we do with the month where we have already employed 157 if the Central Bank tells us the rate should be 154, we will claw back, in the next announcement of 14th.”

Chirchir further noted that the use of an interbank rate computed by CBK would have no adverse effect on the oil marketing companies.

“After all, the Letter of Support that we did provide under the government-to-government fuel acquisition deal does protect the OMCs," he said.

"If we get a rate of Sh153 from the central Bank, for the security of releasing the product from the port to the various oil marketing companies, if at the time of approaching the market on the 90th day to the 150th day, if the shilling will have moved to Sh154, the Letter of Support provides an insurance for Epra to go to the market and collect that money."