Michuki delves into fuel saga

October 14, 2008 12:00 am

, NAIROBI, October 14 – Acting Finance Minister John Michuki has warned that the government ‘will use any means available’ to compel fuel companies to lower their prices.

In a statement issued from Washington on Monday, Mr Michuki urged the companies to reduce their prices to reflect the declining global prices which now stands at $78 a barrel down from an all-time high of $145.

“The government would like to make it clear that it stands ready to use every instrument at its disposal to protect consumers and the economy at large.  Despite the sharp and steady drop, the pump prices continue to remain unacceptably at high levels,” Mr Michuki noted as he emphasised the need for urgent action.  “The government urges the oil companies to act responsibly and immediately reduce their pump prices.”

The government has engaged the companies for months over the prices even as the latter appeared reluctant to reduce their prices despite a reduction in global prices.  It is common for the suppliers to instantly adjust pump prices upwards every time the international market fluctuates.

Last week, Energy Minister Kiraitu Murungi warned that the government could result to price controls if the companies failed to regulate themselves. He issued the warning after President Mwai Kibaki ordered the ministers of Finance and Energy to expeditiously address the rising energy costs including that of electricity at the opening of an energy conference in Nairobi.

The State-owned National Oil Corporation has led the campaign by slashing its prices down to Sh96 per litre for unleaded fuel.  Following the warning by Mr Murungi, several fuel companies have now reduced their prices to an average of Sh99 per a litre for premium but the government insists that this is not reflective of trends in the global market.

The rising fuel prices have pushed the cost of essential commodities up.  The trend has also resulted in an increase in the cost of electricity in the country attracting protests from members of the public and manufacturers.

In his statement Mr Michuki said that the high prices had constrained the growth of the economy “making it difficult to create the much needed jobs for our people.” He added that the high prices had affected the value of the shilling. “It has significantly driven inflation from the single-digit range to the double digit and therefore eroded to some extent the purchasing power of the shilling.’

The oil companies have however called on the government to lower the taxes on the precious commodity which they say are largely to blame for the high prices, before they substantially reduce pump prices. However there are concerns that any tax withdrawal could deny the state much needed revenue for important projects like roads.


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