Fuel prices in Kenya defended

April 11, 2010

, NAIROBI, Kenya, Apr 11- An oil industry player has defended the current hike in pump prices saying consumers are paying Sh6 to Sh8 less than the real cost of the commodity.

Former Kenya Shell Managing Director Eng Patrick Obath told Capital Business that the current prices where a litre of petrol was retailing at Sh85 is fair as oil marketers are being forced to absorb most of their costs instead of passing them on to the consumers due to the stiff competition in the market.

“The level of competition in this country is such that nobody dares sell fuel at the right price because you won’t be able to survive. So when people say that the prices should come down, I don’t think they realise just how much of a good deal they are getting with the current prices,” he argued.

Retail prices went up by an average of Sh4 on Thursday in tandem with a warning that several oil firms had issued a week ago over the likelihood of a price increase in line with the global and local market dynamics.

Eng Obath further explained that the reason why prices in Kenya rarely come down was because local prices are ‘artificially depressed’ which forces many oil firms to operate on sub-optimal margins.

“Any time prices change effectively, people (oil firms) try and get to the right margins that they need. So really we should not be complaining,” he added.

Besides competition, oil companies he pointed out, were incurring huge amount of expenses due to the inefficient oil supply chain in the country.

The lack of adequate storage facilities at the Port of Mombasa forces marketers to pay high  charges – known as demurrage costs – to the vessel owners as often times they are unable to offload their cargo.

“If you just consider the impact of demurrage $40million (Sh3billion) a year who pays for that? That cost could probably put up a whole new facility in Mombasa to store additional fuel. Why doesn’t that happen?” he asked.

Additionally, he said, the construction of a pipeline from Mombasa to Nairobi at a cost of Sh23billion ($300million) to Sh30.8billion ($400 million) would in the long term translate in millions in savings incurred when firms transport oil and related products by road.

With all these factors coming into play, Eng Obath said it was time the country invested heavily in infrastructure that will ensure an efficient supply chain which would in turn greatly reduce the transportation and demurrage costs incurred by the companies.

Without the implementation of such measures, he regretted that Kenyans would continue to feel the pinch of high fuel costs. Also, they would not have any recourse as the National Economic Social Council poured cold water on the proposed price control which was meant to counter the arbitrary increase in the pump prices.


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