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Oil price control plan almost ready

By | February 25th 2009

By Macharia Kamau

The process of reintroducing price controls in the oil sub-sector is almost complete.

The Energy Regulatory Commission (ERC) says it is finalising on its recommendations and would within a few weeks forward them to the Ministry of Energy for legislation.

Using a price control formula, the Commission proposes a maximum margin of Sh6 for wholesalers and Sh3 for retailers for every litre of premium petrol, meaning that consumers would today buy a litre at a maximum of Sh9 above the cost of international crude oil.

The maximum margin for diesel and kerosene would be at Sh2.80.

The margins were arrived at using a formula ERC had proposed in November.

ERC Director General Kaburu Mwirichia said the commission had carried out simulations with the new formula and said though there has been a significant drop in pump prices in the recent months, the prices are still high and do not reflect the fall in international prices.

The regulator had earlier suggested a 10 per cent integrated increase on cost, to cover wholesale and retail margins, but resorted to an actual figure after feedback from the industry. Consultations with stakeholders are still underway.

"We are trying to factor in as many views from the industry as possible and forward our recommendations to the Ministry.If in agreement, it will gazette them as a legal notice," said Mwirichia who spoke yesterday at a stakeholders’ forum on petroleum pricing regulations.

Pricing regulation

In November last year, ERC published a formula that it would use to set the price caps for petroleum products, and asked players to give feedback. This was after Energy Minister Kiraitu Murungi tasked ERC to investigate the feasibility of introducing price control elements based on the movement in international crude oil prices and submit a recommendation for policy decision.

"The purpose of the controls is two fold— for protection of consumers and ensure industry players recover prudently accrued costs and make reasonable margins," said Mwirichia.

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