Focus on ERC as it plans to release new fuel prices

As the Energy Regulatory Commission (ERC) prepares to publish its monthly revised fuel prices, it is not only the motorists who will be having their fingers crossed, but manufacturers, distributors and consumers along the value chain will also be on the lookout to see if the new Excise Duty Act 2015 will have any bearing on cost.

Some manufactures have adjusted their prices to match the new taxes with East Africa Breweries Limited (EABL), the region’s largest beer brewer adding Sh30 shillings to every litre of beer.

The Act imposes a specific excise rate on a number of products including cigarettes and tobacco, alcoholic and sugar sweetened beverages, fossil fuels, aging motor vehicles and environmentally damaging plastic bags.

The situation is not helped by the recent surge in inflation, after a research by Trading Economics revealed that Kenya’s annual inflation rate accelerated to 7.32 per cent in November, up from 6.72 per cent reported in the previous month. The Government desired inflation target rate is five per cent.

The latest rise in the rate had been fuelled by increase in the cost of food, housing and utilities. This was also confirmed by the Kenya National Bureau of Statistics (KNBS), which stated that the prices of basic foodstuffs, mainly grains, had increased.

Therefore, if ERC adjusts fuel prices and also factors a surge in inflation rate, the ripple effect is set to be felt across all the economic sectors.

According to the Excise Duty Act, excisable value on vehicles is expected to increase by over 20 per cent, while that on plastic bag would increase by 50 per cent. Juices and beer have been adjusted upwards by Sh10 and Sh30 respectively.

It’s not clear how much of the new duty would affect fuel prices, but the Bill has raised market anxiety with close industry observers expecting increase in fuel prices in the expected revised price list.

All this is part of the Government’s radical plan to raise a staggering Sh25 billion for the 2015-2016 Budget.

But these will not be the only products affected. Processors of basic agricultural products will have to incur more on operating costs, hence the extra shilling will be passed over to the consumer.

Cars will become more expensive to maintain if fuel prices are increased, especially for first time buyers. However, globally, market prices of oil have registered a decline after the Organisation of Petroleum Exporting Countries (Opec) failed to reach an agreement with non-Opec countries on production limits to boost prices.

More so, the likelihood of the United States Federal Reserve raising its capitation interest rate will add to the falling oil prices as it increases the oil available for trade in the market.

Already, US crude oil has been registered below $40 per barrel, the lowest price level in decades.

If ERC takes this into account, then the price of fuel is expected to be reduced. However, since the Government is struggling to raise Sh25 billion to bridge its budget deficit, raising or maintaining the current price levels for fuel provides it with an easy way to meet its cash needs.