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Why fuel prices could increase further in the next two months

NEWS
By Macharia Kamau | October 4th 2021

The high fuel prices in the country have been blamed on taxes and levies. [Jenipher Wachie, Standard]

Kenyans should brace themselves for a rough time ahead as crude oil prices rise to the highest point in three years, with the shocks expected to reflect at the pump in the coming weeks.

Oil last week traded at $80 (Sh8,800) a barrel, setting the stage for higher local prices, at a time when the cost of fuel is already at a historic high.

The situation is worsened by a weak shilling that has sunk to an eight-month low, trading at Sh110.49 to the US dollar on Friday.

The cost of crude oil and how the local currency is fairing against major world currencies, particularly the dollar, are key factors in determining the direction of pump prices.

The Energy and Petroleum Regulatory Authority (Epra) warned of higher prices last week when Director-General Daniel Kiptoo appeared before the National Assembly’s Committee on Finance and National Planning.

“Looking at the trend, we have seen a further spike in international crude oil prices… we will see prices rise, maybe not this month, but in the next two months,” he said.

Mr Kiptoo explained that the energy industry regulator uses crude oil prices of the preceding month – in this case, September – and the initial days of the following month to determine prices for any pricing cycle.

“The prices that we publish are calculated based on the cargo that landed between the 9th of the preceding month and the 10th of the succeeding month,” he told MPs.

At $80 per barrel, this is the highest cost of crude oil since October 2018. Then, local pump prices were hovering at around Sh117 per litre of super petrol - and it was immediately after the introduction of the eight per cent value-added tax on petroleum products.

Cost of crude oil and how the local currency is fairing against major currencies are key in determining pump prices. [Boniface Okendo, Standard]

The high fuel prices in the country have been blamed on taxes and levies, which currently account for about 44 per cent of the retail price of petrol.

The nine different taxes and levies charged on petroleum products are almost at par with the product cost when the fuel lands in Mombasa.

Over the September-October pricing cycle, the landed cost for a litre of petrol was Sh60.35, while the total taxes were Sh58.81.

Responding to questions on what could be done to lower the cost of fuel, Kiptoo said the taxes can be reviewed.

“There is an opportunity to relook the taxes, bearing in mind the outcry from Kenyans and also the escalation in international prices. This is the purview of Parliament,” he said, adding that there was little that the country could do about the landed prices, but other costs were within the control of the different players in the petroleum sector.

“What is within our control are the margins (for oil marketing companies), the taxes and storage and distribution,” Kiptoo said.

“The biggest contributor are the taxes, which are within the purview of the government and Parliament.” 

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