Low petroleum prices cut import bill by Sh50 billion

An attendant at a Nyeri petrol station. PHOTO | FILE 

By NEVILLE OTUKI, notuki@ke.nationmedia.com

In Summary

• The lower prices have helped stabilise the shilling, which has traded at Sh101 since the beginning of the year against the US dollar – the currency used in most of Kenya’s transactions in the global market.

Low global petroleum prices helped Kenya save nearly Sh50 billion in petroleum import bills during the first half of the year despite the steep rise in consumption, the latest industry data indicates.

Kenya imported Sh92.7 billion worth of fuel and lubricants in the year to June, down from Sh140 billion in the same period last year – cutting its oil import bill by Sh47.3 billion, according to the Energy Regulatory Commission (ERC).

At Sh47.3 billion, Kenya’s savings were more than enough to construct another Thika superhighway, which cost Sh32 billion and leave some change. The ERC said the reduction in the import bill was largely due to the plummeting of global oil prices that began in the second half of last year and has persisted to date.

Kenya now imports all its refined petroleum products after it closed the Kenya Petroleum Refineries Limited in September 2013.

Motorists paid an average of Sh85 at the pump for a litre of petrol in Nairobi in the year to June, down from Sh91 in a similar period last year, saving them an average of Sh6 per litre. Diesel pump prices stood at an average of Sh70 a litre in the capital city, down from Sh79 – helping motorists to free up Sh9 for every litre consumed.

The Kenyan government has, however, been keen to collect more revenues and has used the low global prices to introduce multiple taxes on fuel even as consumption continues to grow.

This year, for instance, the National Treasury increased the Road Maintenance Levy by Sh6 per litre of diesel and petrol, a move that is expected to add billions of shillings to the taxman’s pocket.

Petrol consumption jumped 31.5 per cent in the first half of the year to 787.9 million litres as motorists took advantage of the lower pump prices to keep cars on the road.

Consumption of diesel, used to power trucks, buses, vans and factories was up 27 per cent to 1.24 billion litres from 972.6 million litres, according to industry data.

Lower crude prices have ensured that the rising domestic appetite for petroleum products has not translated to a higher import bill.
Road expansion has, however, failed to keep pace with the volume of cars being added to the roads, piling pressure on the existing infrastructure and making log-jams a daily scene in the country’s major towns and highways.

Petroleum pricing plays a central role in the economy because its movement is often transmitted to nearly all sectors of the economy, including transport, manufacturing and agriculture.

Producers, who rely on diesel, often respond to the cost movements by adjusting retail prices of their products and services, pushing inflation up or down.

Quarter of import bill

Inflation stood at 6.26 per cent last month, partly helped by the low petroleum prices and stable prices of agricultural produce.

Petroleum has in the past accounted for about a quarter of Kenya’s annual import bill, but that has now shrunk to 13.4 per cent in the year to June.
The lower prices have helped stabilise the shilling, which has traded at Sh101 since the beginning of the year against the US dollar – the currency used in most of Kenya’s transactions in the global market.

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Kenya’s current account deficit – the difference between the value of exports and imports – has also narrowed in the first half of the year helped by lower global oil prices and the subsequent drop in the import bill. Last week, the Central Bank of Kenya (CBK) acknowledged this positive development when it declared that “the foreign exchange market has remained stable, reflecting the narrowing of the current account deficit due to improved export earnings from tea and horticulture, a reduction in the imports (value) of petroleum products due to lower oil prices and resilient diaspora remittances.”

That verdict enabled the Monetary Policy Committee to slash the policy rate by 0.5 percentage points to 10 per cent on Tuesday, setting the stage for a further drop in lending rates.

The CBK expects Kenya’s current account deficit to narrow to 5.5 per cent of the gross domestic product (GDP) this year, from 6.8 per cent in 2015.
Cheaper petroleum helped slash Kenya’s total import bill by Sh212 billion or Sh23 per cent to Sh689.8 billion in the year to June from Sh901.8 billion the same period last year, according to data from Kenya National Bureau of Statistics (KNBS).

Petroleum accounted for 13.4 per cent of the country’s import bill during the period, coming in third behind industrial imports and machinery.
At Sh47 billion, the reduction in petroleum spending is equivalent to a sixth of the Sh787 billion foreign exchange reserves held by the CBK or equivalent to 5.2 months of import cover.

This underlines the benefits that lower petroleum prices have had on the economy – including a cushioning of the shilling from wild swings against the dollar and keeping inflation in check.

Crude oil price touched a low of $30 a barrel (159 litres) in the first quarter of the year due to a glut and cooling of demand before rebounding to $46 a barrel currently.

Jet fuel consumption grew 33 per cent to 413.5 million litres in the year to June, highlighting brisk activity in the domestic aviation sector. Fuel attracts multiple tax charges that consumers pay for at the retail pump. Excise duty on petrol is Sh19.89 a litre while the levy on diesel is Sh10.3 per litre.

Petrol and diesel also attract a road levy charge of Sh18 a litre. Consumption of kerosene, mainly used by poor homes for cooking and lighting, jumped 52 per cent to 269 million litres. Cooking gas use jumped 83 per cent to 81,356 tonnes on lower crude prices.

This is poised for further growth due to lower prices following the removal of value added tax on cooking gas in June.
notuki@ke.nationmedia.com