Law to cap fuel at Sh96 due this week

November 30, 2010
Shares

, NAIROBI, Kenya, Nov 30 – Energy Minister Kiraitu Murungi is expected to publish the legal notice that will effectively regulate fuel prices in the country by the end of the week.

The Permanent Secretary at the Ministry Patrick Nyoike told reporters that officials from the Energy Regulatory Commission (ERC) and the Attorney General were due to meet on Tuesday to work on the final draft which will cap the profit margins made by oil marketers with the intention of effecting it next week.

“Hopefully by the end of today, we will have the final draft submitted to the Minister for Energy to sign. If all goes well, I hope we can get it issued by Friday,” he said.

The regulations are formula-based and will fix the margins initially at Sh6 per litre for the wholesalers or the importers; different limit for those at the retail stations and also set a transport margin.

Using the formula, the ideal price for a litre of petrol should be Sh95 while diesel should sell at Sh85; prices that the oil marketers will be expected to comply with failure to which they will face stiff penalties of up to Sh2 million.

Since the government announced its intention to regulate the industry, a few marketers have effected at Sh2 to Sh3 price cut which Mr Nyoike dismissed as inadequate.

The PS has not shied away from blaming the industry players saying their desire to make obscene profits is what has forced the government to resort to price controls.

But even as the effective date nears, a section of the private sector has continued to voice its opposition to the idea with Kenya Private Sector Alliance (KEPSA) chairman Eng Patrick Obath saying that fixing the margins will only work if the infrastructural inefficiencies in the oil supply chain are addressed.

“I don’t think we would like to see profit caps. What we want to see is a reasonable return on investment. Globally a 10 to 15 percent return on investment is the yardstick,” he argued.

The cap, he further said should guarantee a good return for all players in the supply chain.

He criticised the government for trying to fix the prices saying that was based on an ideal situation that did not take into account the fundamentals in the international crude prices and inefficiencies which result in high demurrage and transportation costs.

“The reality is that there are inefficiencies in the system that that capping has not taken into account,” he said although he admitted that the current fuel prices which are averaging Sh99 are high.

Although he did not indicate whether they would lobby to have the regulations amended, there were several issues in the soon to be gazetted legislation that need to be removed.

COTU Secretary General Francis Atwoli however expressed the union’s support to the government in its plans to re-introduce price controls. Mr Atwoli said poor Kenyans were the biggest losers when fuel prices went up and urged the government to rein in on what he called cartels in the industry.

He restated that the COTU Executive Board meeting slated for December 20 where it has threatened to mobilise a countrywide workers’ strike if the marketers will not have reduced their prices, was still on.

At the same time, Matatu Owners Association Chairman Samuel Kimutai welcomed the decision to control pump prices saying it would effectively lead to a reduction on the cost of transportation.

Once the regulations are enforced, Mr Kimutai said he would implore his members to pass on the benefits to their customers whom he said have been forced to walk to work.
 

Shares

Latest Articles

Stock Market

Most Viewed