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As crude oil prices tank, State will be the pain at pump

BUSINESS
By Macharia Kamau | March 29th 2020

When crude oil prices crashed in January 2016, local pump prices went down. But many people then felt that the retail prices should have dropped by a bigger margin.

Crude oil prices had gone to under $30 per barrel at the start of 2016, having steadily come down from $55 in October 2015.

Retail prices reduced to an average of Sh87.38 per litre of super petrol in February 2015, and would later drop to Sh81.61 in April of the same year, according to data by the Kenya National Bureau of Statistics. This is in comparison to Sh103 per litre of petrol in September 2015.

The average price in April of 2016 was the lowest that retail prices of petrol, diesel and kerosene have been in about 10 years that the government has been capping the prices of the three fuels.

A similar scenario has unfolded this year, with the cost of crude oil drastically declining over the last two months. On Friday, a barrel of crude oil was going for $25, having come down from $68 per barrel at the start of this year.

Industry experts note that local prices will post a significant drop when the Energy and Petroleum Regulatory Authority publishes prices for April, sentiments that the regulator has expressed.

Energy and Petroleum Regulatory Authority Director General Pavel Oimeke recently told The Standard that if the drop in low crude oil prices is sustained, then there could be a significant drop in local retail prices.

“If it (crude oil price) stays that way for the next month or until the next (April) price review, we expect some impact for consumers,” he said.

EPRA would also reiterate the same while publishing this month’s pump prices when it noted that the “effect of the recent crash in crude oil prices will be reflected in the subsequent pump price reviews”.

The drop might, however, not reflect the more than 50 per cent drop in price that the crude oil price has posted since January owing to numerous taxes imposed on petroleum that deny Kenyans the benefit of low global oil prices.

The government currently takes 43 per cent of the money that consumers pay for fuel.

Currently, motorists are paying Sh110.87 per litre of super petrol in Nairobi. Of this, the government is taking a massive Sh47.17 in different levies. This almost compares to the price of the fuel when it lands in Mombasa, at Sh48.04 per litre – which caters for the cost of the refined product and shipping to Mombasa.

The balance is shared by the oil marketing companies as retail and wholesale margins (Sh12.39 per litre) and transporters including owners of petroleum tankers and the Kenya Pipeline Company (Sh3.27 per litre).

Among the taxes and levies that could deny Kenyans the benefit of a huge drop include the Import Declaration Fee (IDF) of 3.5 per cent and the Railway Development Levy (RDL) (two per cent). The two levies were increased last year and do not apply to petroleum alone but other imports.

Fuel products are also subject to excise duty, which is higher on super petrol but slightly lower on diesel and kerosene.

There is also the value added tax that is levied at eight per cent which came to effect towards the end of 2018. VAT on fuel was halved from the traditional 16 per cent after a public uproar on the high taxes on petroleum as well as the impact it would have had on the cost of living.

There is also the anti-adulteration levied on kerosene at Sh18 per litre. The levy is among measures put in place to fight adulteration of other fuels, whereby unscrupulous dealers would lace them with kerosene, which was then cheaper, to shore up volumes and sell to unsuspecting motorists.

The introduction of the levy resulted in the decline in kerosene consumption to an average of 14,000 metric tonnes per month in 2019 compared to about 30,000 metric tonnes in 2018.

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