Is Kenya’s fuel price regulation necessary?

The Energy and Petroleum Regulatory Authority (Epra) has dismissed claims that the planned price stabilisation fund aimed at taming the volatility of pump prices is an indictment of the decade-long regulation of pump prices. 

Kenya adopted the petroleum price regulation regime in December 2010 with the adoption of the Energy (Petroleum Pricing) Regulations of 2010 following years of market failure which saw a misalignment between global and domestic oil prices.

In July 2020, the Petroleum Development Levy was revised upward from Sh0.40 to Sh5.40 per litre in bid to mobilise capital towards the subsidy fund. The increase came into effect thanks to the Tax Laws (Amendment) Act of 2020. EPRA argues that despite the relatively subdued price of oil in the global market, such a fund is necessary to smooth out volatility.

“What the stabilisation fund would mean is that we come up with a median price and if the market price falls below the median price, then what you realise feeds into that fund. This is really what we are trying to do with the Petroleum Development Levy which was recently increased,” says Edward Kinyua, the director for petroleum and gas at EPRA. 

“Nobody knows what the future of oil prices in the global market looks like. Since 2014, for example, we have been enjoying prices of below $100 per barrel. Oil is, however, about geopolitics and if the geopolitics in the Arabian Gulf changes, for instance, we could see the same price shooting beyond $100 per barrel. It is the interest of cushioning mwananchi from such that the thought of a stabilisation fund has come about.”