New formula denies fuel consumers price drop benefits

Politics and policy

A fuel attendant at a petrol station. The government started the monthly review of retail fuel prices in 2010. PHOTO | FILE 

By NEVILLE OTUKI, notuki@ke.nationmedia.com

In Summary

• The stabilisation fund will see the energy regulator pass on benefits of lower prices to motorists by half and increase product prices by a similar margin should crude prices rise sharply.
• The ministry reckons the fund — which is modelled as a hedging tool— would ensure local firms and motorists do not suffer steep price fluctuations tied to global market changes.

Kenya will set up a petroleum fund to cushion consumers from fuel price volatility, a change that will see motorists lose out on big cost cuts when global crude petroleum prices fall sharply.

Energy principal secretary Joseph Njoroge on Thursday said talks are ongoing with oil marketers and the Treasury to facilitate the set up of the fund from July 1.

The stabilisation fund will see the energy regulator pass on benefits of lower prices to motorists by half and increase product prices by a similar margin should crude prices rise sharply.

“If the price of petrol is Sh90 a litre today but drops to Sh80 after another round of procurement, we will lower by Sh5 instead of Sh10 with the other half going to the fund,” said Mr Njoroge on the sidelines of an energy workshop in Nairobi.

The ministry reckons the fund — which is modelled as a hedging tool— would ensure local firms and motorists do not suffer steep price fluctuations tied to global market changes.

Global crude prices have fallen sharply over the past year from a high of Sh10,672 ($115) per barrel in June to a low of about Sh4,268 ($46) per barrel in December, before rising to the current Sh5,104 ($55) a barrel.

But on Thursday motorist said that Kenya delayed in realising the benefits of the rock-bottom crude prices and accused the Energy Regulatory Commission (ERC) of being quick to review product prices upwards when global cost begin to rise.

Petrol prices dropped from Sh116.62 a litre in August to Sh84.71 in February and rose to Sh89.46 in March, sparking an uproar that saw consumers lobby—Cofek—threaten legal action against the ERC.

READ: Cofek calls for end to ERC’s monthly petrol price fixing

Last month’s fuel price increase was the first in six months by the ERC. The regulator on Thursday said the fuel prices are set to maintain an upward trend in coming months.

Expand storage

“We can’t move back to where we were. We need to be prepared for price increases,” said ERC director-general Joseph Ng’ang’a at the workshop.

Besides the fuel fund, Mr Njoroge said Kenya will expand its storage facilities to allow importation of large cargo in times of lower prices.

Manufacturers have recently asked the energy regulator to consider reviewing fuel and electricity prices twice a year as opposed to a monthly review to create stability in the market.

The government started the monthly review of retail fuel prices in 2010 after prices drastically shot upwards, driving up the cost of living and eliciting an uproar form Kenyans.