A female petrol pump attendant. Kenya is planning to establish a special
fund to cushion the country from the effects of rising crude prices on
the international market. PHOTO | REUTERS
Kenya is planning to establish a special fund to cushion the
country from the effects of rising crude prices on the international
market.
Even as things calm down after the United
States backed down on tough Iranian sanctions — which would have
impacted global supplies and sent prices skyrocketing — Kenya is
planning a fund that will ensure rising prices don’t have dire
consequences for the local market.
Last week, the US
granted waivers to eight countries to continue importing crude from
Iran, averting a possible global supply crisis and ensuring crude prices
at the international market settled at $71 per barrel.
The
waiver, which allows Iran to continue supplying 1.7 million barrels per
day to the global market, eases anxiety over international prices
reaching $100 per barrel by year-end after hitting a four-year high of
$84.78 a barrel in early October.
“The world is
experiencing oversupply amid a slowdown in economic growth. This means
crude prices are likely to stabilise at $70 per barrel,” said George
Wachira, an oil industry expert.
Kenya is considering
the adoption of a fund mechanism that ensures local fuel prices are not
significantly affected when crude prices increase at the international
market as witnessed in 2014 when prices reached a historical high of
$112 per barrel.
Stabilisation fund
The plan,
which is contained in a report presented to the Energy Regulatory
Commission, recommends the establishment of a Petroleum Price
Stabilisation Fund whose core mandate will be ensuring macroeconomic
stability and protecting low-income consumers from international oil
price fluctuations.
The government will be required to
finance at least 40 per cent of imports if the prices of crude increase
by more than three per cent but less than seven per cent.
“The
idea of a price stabilisation fund is to enable the government to
moderate transmission of global oil price volatility to the domestic
market with little or no budgetary cost,” says the report by consultancy
firm Kurrent Technologies.
It adds that countries that
are dependent on petroleum imports implement price stabilisation
mechanisms to maintain macroeconomic stability.
The
report said that although global oil prices are currently trading at
$60-70 a barrel, the fact that price levels have hit over $100 a barrel
in the past shows that this situation could arise again in the future.
With
prices of fuel at the pump in Kenya now being high following the
introduction of value added tax at a rate of eight per cent and tripling
of the road maintenance levy, the possibility of prices of crude rising
to 2014 levels would spell doom for consumers and the economy.
Retail
consumers are currently paying $1.18 per litre of petrol in Kenya
compared with $1.14 in Uganda, $1.01 in Tanzania and $1.28 in Rwanda.
The
establishment of the stabilisation fund will involve introduction of a
new variable levy in the pricing formula, which will be collected
through petroleum product sales.
According to the Economic Survey 2018, Kenya imported 6.34 million tonnes of petroleum products in 2017, up from 6.32 million tonnes in 2016.
According to the Economic Survey 2018, Kenya imported 6.34 million tonnes of petroleum products in 2017, up from 6.32 million tonnes in 2016.
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