Govt wants fuel price formula reviewed

April 6, 2011

, NAIROBI, Kenya, Apr 6  – The Ministry of Energy has directed the Energy Regulatory Commission (ERC) to review the formula used to calculate the retail price of petroleum products.

Energy Minister Kiraitu Murungi on Wednesday said that the formula had not adequately addressed concerns of all the stakeholders and wanted the ERC to re-evaluate it.

“The international prices have continued to escalate monthly adversely affecting both domestic consumers and oil marketers.  We are looking into the issue with the view of having the formula reflect the actual dynamics,” Mr Murungi said.

The minister however ruled out scrapping of the formula on price controls arguing it remained an important tool for the government to monitor oil prices in the market.

Price controls in the fuel market was introduced in December 2010 following the introduction of the Energy (Petroleum Pricing) Regulations 2010.

The pricing structure sees pump prices remaining unchanged for at least a month with all oil marketers making a profit of Sh6 at the wholesale level and Sh3 at retail level.

However, oil companies argue that the formula used by ERC did not capture costs incurred from delays brought about by challenges in importation, storage, transportation and distribution of petroleum products to meet the rising demand.

Petroleum Institute of East Africa Chairman David Ohana said oil marketers had developed an industry policy paper that could see pump prices go down by as much as Sh18.

“We feel that the current formula doesn’t take into account a number of challengers that we face and the policy paper can go a long way in addressing these challenges,” Mr Ohana said.

ERC Director General Kaburu Mwirichia said the regulator was ready to consult with the oil companies but they would need to work out a permanent solution.

“We don’t want a situation where when oil prices are high they say one thing and once they come down they say another. What we need most is stability in the oil market,” Eng Mwirichia said.

Increased demand for oil from fast growing economies and political instability in North Africa and the Arab world have combined in recent months to exert pressure on prices to the current $122 per barrel.

The concern however is that the price could climb even further.  In 2008 when crude prices touched a high of $147.20 per barrel, domestic pump prices hit Sh110.

Under the current formula, pump prices rose by as much as Sh4.44. Nairobi residents who accounts for more than 60 percent of the country’s total petroleum market, are paying Sh102.44 for a litre of super petrol while those in Mandera are paying the highest at Sh113.98.

With crude prices rising through the month, it is expected that the pump price could go even higher.

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