How higher oil marketers' margins adds to the pain of higher fuel prices

A pump attendant fueling a car at a petrol station along koinange street. [Wilberforce Okwiri,Standard] The Energy and Petroleum Regulatory Authority on Monday increased the margins for oil marketing companies by Sh2.15 per litre, a move that played a part in pushing the retail cost of fuel to the highest since September last year. It is the second time in four months that the Authority has increased the margins, which has resulted in an overall increase of Sh5 per litre across the three products whose price is regulated. This has seen oil marketing companies now make Sh17.39 per litre of super petrol this month from Sh12.39 in February this year. Margins for diesel went up to Sh17.31 per litre in July from Sh12.36 in February, while the oil firms now make Sh17.24 per litre of kerosene from Sh12.36 in February. Epra has been implementing the recommendations of the Cost of Service Study in the Supply of Petroleum Products (Cossop), which recommended increasing margins for oil sector players. The study recommended an increase in the OMC margins by at least Sh7 per litre of petrol, which Epra adopted but said it would implement in phases. In the first phase in March, the margins increased to Sh15.24 per litre of super petrol, Sh15.16 per litre of diesel and Sh15.09 per litre of kerosene. In the pricing cycle for July and August, Epra has pushed this up to slightly over Sh17 per litre for three products. The final phase will see margins increase to over Sh19 per litre for each of the three products. The higher OMC margins, together with the withdrawal of the subsidy and higher landed cost, resulted in the cost of super petrol by Sh8.99 a litre. Diesel increased by Sh8.67 while kerosene went up by the largest margin of Sh9.65. Super petrol is now retailing at Sh186.31 per litre in Nairobi from Sh177.32 per litre over the pricing cycle to July 14. Diesel is retailing at Sh171.58 per litre from Sh162.91, while kerosene will cost Sh156.58 up from Sh146.93. Fuel prices have generally declined since November 2023, when the price of petrol hit a historical high of Sh217.36 a litre in Nairobi. Higher pump prices are expected to hit Kenyans hard as the cost of essentials, including transport, food, and manufactured goods, goes up. "We are going to have a bit of strain. Inflation is going to go up because petroleum carries all other industries, which means pain among SMEs which rely on transport or diesel engines to power production or get their products to the market," said Martin Chomba, chairman Petroleum Outlets Association of Kenya. "The purchasing power among Kenyans will be eroded to an extent." The Institute of Economic Affairs (IEA) Kenya has raised concerns about the manner in which Epra raised the margins, querying the level of transparency, but also arguing that the review has been designed to guarantee profits for the oil sector. This is despite the impact that such a move has on the economy, and called for its abandonment. "When these margins are adjusted through regulation rather than competition, we need to ask a basic economic question: Are we pricing efficiency, or merely protecting incumbents?" posed IEA economist Fiona Okadia in a report earlier this week. "When a regulator like EPRA steps in to guarantee a minimum return, regardless of global price swings, taxes, or exchange rate volatility, it signals a shift: from market-based risk to state-backed profit." "Such intervention is unjustified, as government policy should be firm-agnostic, focused on ensuring competitive markets and consumer welfare, rather than guaranteeing the survival of any single enterprise even though government claims that they do so in order to prevent oil marketers from exiting the market and causing a supply crisis."

How higher oil marketers' margins adds to the pain of higher fuel prices

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How higher oil marketers' margins adds to the pain of higher fuel prices

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