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With kerosene cheaper, prepare for adulterated petrol

FINANCIAL STANDARD
By Macharia Kamau | May 24th 2022 | 4 min read
By Macharia Kamau | May 24th 2022
FINANCIAL STANDARD
A Kerosene pump attendant fills a container at Majengo area in Nyeri. [John Gathua, Standard]

The government is subsidising the retail price of kerosene by as much as Sh50 per litre.

This is in a bid to cushion the more than 1.7 million households that use the fuel as their primary energy source for cooking and lighting up their homes.

The huge subsidy has made the cost of kerosene considerably lower compared to that of diesel and super petrol, which is now a cause for concern for stakeholders.

They now fear that rogue players in the petroleum sector could resort to adulterating other petroleum products with kerosene as they seek big margins.

The cost of kerosene - currently retailing at Sh118.94 per litre in Nairobi - is Sh12 lower than that of diesel (Sh131 per litre) and more than Sh30 cheaper than super petrol (Sh150.12).

In the absence of the subsidy, Kerosene would retail at Sh169.26 per litre in Nairobi.

The government appears to have effectively dealt with the problem of fuel adulteration after it increased the price of kerosene, bringing it at par with that of diesel in 2018 after a series of tax hikes.

Consequently, consumption of kerosene has nosedived since then, with the Petroleum Ministry noting that the decline has been due to the rogue traders finding little incentive to buy kerosene to adulterate other fuels.

With the recent developments where fuel prices have reached historical highs and with the government intervening to cushion consumers, the gap between the different petroleum products has grown.

Diesel has gotten a higher subsidy than super petrol due to its importance to different sectors of the economy, such as transport and manufacturing.

Kerosene, on the other hand, is regarded as the poor man’s fuel as it is predominantly used by low-income households for lighting and cooking.

Consumers Federation of Kenya Secretary General Stephen Mutoro said the rowing difference in prices could make kerosene attractive to unscrupulous traders who have in the past used it to increase volumes of other petroleum products.

Unscrupulous fuel marketers might mixe kerosene with other products. [iStock]

“Cheaper kerosene could stir demand from desperate consumers, and as a result, erode the huge gains so far made. The fuel adulteration vice will certainly creep back,” he said.

“Temptation by unscrupulous fuel marketers might see them mixing kerosene with other products to enhance their margins.”

Rather than give such a hefty subsidy for kerosene, Mr Mutoro said, the government should instead invest in enabling Kenyans to shift from using kerosene to cooking gas.

“Poor households do not need cheaper kerosene. They need cheaper LPG (liquified petroleum gas) and affordable solar energy for their lighting,” he said.

“Instead of lowering the prices of kerosene, the country should develop a master plan in which it can open the LPG direct imports. We need LPG to be affordable. Today Kenyans are paying more than double the cost of LPG because of the current abuse of dominance. Treasury and the Petroleum Ministry can entrust KPC (Kenya Pipeline Company) through KPRL (Kenya Petroleum Refineries Ltd) to at least 50 per cent of the LPG import quota. It’s a worthwhile investment.”

The price difference is of concern to the authorities, with the low-income households being the hardest hit and hence the need to cushion them from the high cost of the fuel.

The Energy and Petroleum Regulatory Authority (Epra) Director General Daniel Kiptoo told a recent press conference that the regulator has tamed the vice “to minimum levels due to increased surveillance”. But he also noted that the price difference is a concern.

In recent testing of samples collected from different petrol stations across the country, Epra has consistently reported over 98 per cent compliance, according to quarterly reports it publishes on the sale of adulterated or export bound petroleum products.

Cushioning Kenyans

Energy Principal Secretary Andrew Kamau in a past interview told The Standard that the government has to balance between fighting the vice and cushioning Kenyans.

Energy Principal Secretary Andrew Kamau. [iStock]

“We have to balance between fighting adulteration and giving access to fuel for the common mwananchi. The risk is that the people who are doing this (adulteration) do not care about Kenyans. They want to make money at any cost,” he said.

In the past efforts to fight adulteration, which have been effective, successive taxation measures have increased the price of kerosene to the point it matched that of diesel. In 2018, the National Treasury introduced the anti-adulteration levy of Sh18 per litre for kerosene.

In the months leading to the introduction of the levy, the government also increased the excise duty levied on kerosene by Sh3.10 per, pushing the total excise duty to Sh10.31 per litre from the earlier Sh7.21.

The introduction of taxes came after a study of the Tanzanian market that has succeeded in taming fuel adulteration primarily through increasing the cost of kerosene through tax hikes.

The measures have resulted in a significant reduction in the consumption of kerosene, which stood at 111,300 tonnes last year and 448,000 tonnes in 2017, according to data by the Kenya National Bureau of Statistics (KNBS).

KNBS noted that this could be a result of the uptake of cooking gas, whose consumption has more than doubled over a similar four-year period to 378,000 tonnes in 2021 from 189,000 tonnes in 2017.

“Demand for LPG remained high, further increasing by 13.9 per cent to 371,400 tonnes, while that of illuminating kerosene continued to decline to 111,300 tonnes in 2021,” reads the Kenya Economic Survey 2022 by KNBS.

“This implies sustained use of LPG following continued government policy to promote the use of clean energy.”

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