Brace for fuel price hikes as Epra mulls review of pricing formula

Fuel pumps at the Rubis Petrol station along Koinange street, Nairobi. [Elvis Ogina, Standard]

The government is planning to review the fuel pricing formula, introducing new components that could result in a further increase in the cost of fuel.

The Petroleum Ministry has drafted new regulations that could see the revocation of the 2010 pricing formula, whose implementation ushered in the era of price capping for kerosene, diesel and super petrol.

The draft Petroleum (Pricing) Regulations, 2022, which will be under the Petroleum Act of 2019, will replace the Energy (Petroleum Pricing) Regulations, 2010.

The move will align the price capping regulations to the Petroleum Act of 2019, with the 2010 regulations having been crafted based on the Energy Act of 2006.

The latter has since been replaced by the Energy Act of 2019, which no longer handles petroleum issues. The draft regulations have increased the components factored in when computing the retail cost of diesel, super petrol and kerosene.

Among the new additions include a foreign exchange component as part of the landed cost that will cushion petroleum industry players from the volatility of the shilling against major world currencies.

Epra said the new components would "not necessarily" lead to higher pump prices. It however added that they offer room for the monthly price to take care of temporary situations and cushion from unforeseen circumstances, which the 2010 regulations do not.

"The new factors allow for flexibility taking into account changes in supply chain dynamics some of which may be temporarily arising from prevailing geopolitical conditions, for example, in the supply countries. This is meant to assure the security of supply of petroleum products to the country even in highly dynamic supply conditions," said Epra.

Foreign currency

According to the proposal, the foreign exchange component will enable oil importing firms to recover losses that may be incurred when converting "the cost of imported petroleum products from US dollars or any other foreign currency to Kenyan shillings and which shall be the mean selling rate of leading commercial banks or any other rate as may be determined by the (Energy and Petroleum Regulatory) Authority. Motorists will incur such new costs as inventory financing costs, which are expected to help oil marketing companies access working capital.

Other new costs include jetty handling fees, which will be the money passed on to entities that facilitate the unloading of petroleum products from ship tankers, mostly government-owned. The new formula will also compensate oil marketers for what it describes as "any other prudently incurred cost approved by the Authority."

The 2010 regulations have not kept up with changes in the industry over the last decade.