Fuel hike will hurt businesses, consumers

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BETTY MAINA

Kenya\’s business community and indeed Kenyans in general are a worried lot following the decision to increase pump oil prices by Sh5 and now (as at Thursday) Sh8.

This increment will greatly increase the cost of doing business in the country and deal a major blow on the competitiveness of the country\’s businesses, thus adversely impacting on businesses and consumers alike.

We the business community are worried because this increment in the cost of fuel also means that the cost of power will increase quite tremendously given that the fuel cost adjustment aspect of the electricity bill will increase simultaneously.

It is imperative to note that fuel is a heavy and very important item on the budget of businesses and given the current goings on, consumers will have to shoulder the additional costs by paying much more for products. For instance, energy including fuel account for as much as 45 percent of the production cost for firms involved in cement production and metal works among others.

Clearly, there is urgent need for the Government to move in and impose a degree of control to cushion the economy from adverse effects that might be experienced if the current high prices are sustained.

Although we acknowledge that fact that we are operating in a free market economy, there are indeed many aspects that are still in the control of the State control and which the Government must act on firmly and zealously in order to control this crisis."

We therefore propose the following:
"    While price fuel caps are considered useful in curbing the costs of fuel to consumers, getting the formula right is of great importance. It has emerged clearly that the formula used by ERC is not capable of curbing price volatility and rises.

"    As a matter of fact, this has seen the cost of fuel increase from just below Sh 90 in December last year to the current over Sh104-119 a litre – within a span of three months!" "Unfortunately this increment has been relatively high increase and rather independent of the international crude oil prices.

We note with concern that under the formula that is currently in use, pump prices have risen by as much as Sh 13 with Nairobi residents paying as much as Ksh 111  for a litre of super petrol while those in Mandera are paying the highest at Sh 119. This is without a doubt extremely unfortunate.

Fuel caps should ensure that a limit is put on the maximum amount a marketer is allowed to charge consumers; which should be reached upon using an agreed upon formula. Such a move is important because apart from seeing the players make reasonable profit margins; it will also cushion consumers from exploitation.

"    The formula that is used to come up with the cost of fuel price should be reworked in order to deal with the sky rocketing prices that threaten not only the business community but also the livelihood of Kenyans. It is critical that the state get a levelising item in the formula so that consumers in the different parts of the country pay similar amounts for fuel consumption.

"    There is need to address the unfair competition whereby the market is tilted towards the bigger industry players resulting in unfair competition. It is crucial that the government ensure a level playing field for all competing firms thus ensuring a level playing field.

"    There is need to address other factors including delays occasioned by challenges in importation, storage, transportation and distribution of petroleum products in order to curb fuel price increments. Players in the fuel industry have for long cited vessel delays and inefficiencies at the oil refinery which are then passed on to consumers among other reasons for the trends in the local fuel prices.

The KPC accuses players of delays in product evacuation which delays the transmission of product along the line.

"    The Government should seek urgent measures that will ensure that the country has strategic reserves of fuel stock that can serve the country for at least 90 days at any given time. Such a move will greatly assist in stabilising fuel prices and cushion consumers from waking up to \’shock prices\’ as happens presently.

Ms Maina is the CEO of the Kenya Association of Manufacturers

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