High energy prices is a huge policy failure

By Billow Kerrow

A global Gallup poll released last week revealed Kenyans are among the world’s saddest people. Ranked 13th country with ‘the most dissatisfied people with their lives’ among 124 countries surveyed, the country faces real danger of social upheaval.

Seventy Eight per cent were most dissatisfied but 16 per cent indicated they were barely surviving! It must have startled the Executive that only six per cent of the population is doing well under its leadership. We have long argued that our socio-economic policies are elitist generally, and change nothing for the majority.

Earlier in the month, a similar poll revealed about 80 per cent of Kenyans found it difficult to buy food. With 50 per cent of the population living on less than a dollar a day amidst the increasing prices of essential commodities, the situation is bound to worsen soon. Lack of priorities in policy implementation and mismanagement of public resources play a major role in failure to address these problems despite many pledges.

Let’s look at the high fuel prices. Following public uproar, Parliament debated this matter for several hours this week and resolved to set up a select committee to address the high cost of living.

From their contributions in the House regarding the sector, we can reasonably expect they will provide yesterday’s solution to today’s problems. Only a few weeks earlier, the Energy Committee did a shoddy job in examining the industry’s problems and presented a worthless list of recommendations. Industry solutions proffered by the 45 oil-marketing companies (OMCs) were ignored, as often, under the pretext that they behaved like cartels.

The most important factors responsible for the upward trend in the fuel price is the rising international oil prices and the depreciation of the shilling against the US dollar. In the short term, it’s not about corruption and inefficiency in the energy sector or the Energy Regulatory Commission (ERC) sleeping on its job.

Without the ERC price capping, pump prices would be much higher today because its formula is based on two month’s global oil price averages. OMCs are the losers in a situation where global oil prices are rising daily.

In the short term, the Government can only mitigate against this situation by reducing the fuel taxes. The Finance Minister should scrap the tax on kerosene, which is hurting the poor most and generates only a limited amount of revenue.

In the long term, the Government ought to invest in infrastructure, such as additional storage tanks at Kipevu, to eliminate the huge cost of demurrage borne by the consumers. Pipeline efficiency and capacity should also be addressed to make it more competitive against transportation by trucks. It should also set up strategic oil reserves that can be used to reduce price shocks as is done in many Western economies.

Above all, Kenya Petroleum Refineries should be shut down as it increases fuel costs by Sh10 a litre due its inefficiency, until the new investors pump in money to rebuild it. Its privatisation is akin to that of the Rift Valley Railways – just hot air! As a poor country, let’s also consider government to government concessions for cheaper supplies and not just the spot market in the Middle East. Several countries had offered us cheaper fuel in the past but a Parliamentary question on this matter in 2009 drew blank answers.

Duties from the petroleum sector account for nearly half the Customs revenue annually. The ever-increasing public expenditure often mitigates against reduction of these taxes. And if Parliament is really concerned about welfare of the sad Kenyans, it should start by critically scrutinising the Sh1 trillion budget to eliminate wastage and non-essential spending and use the amount to subsidise the diesel prices to stabilise transport and agricultural sectors. Unless we do that, come June, it will be a different ball game if the political situation in the Arab countries remains fluid.