Independent fuel dealers complain over pricing

November 17, 2011

, NAIROBI, Kenya Nov 17 – Independent oil marketers are calling for a review of the current fuel pricing formula arguing it is significantly weighing down their margins.

Under the auspices of Kenya Independent Petroleum Distributor Association (KIPENDA), the dealers said lack of access to fuel products held by multinational oil companies was impacting their ability to compete favourably with the huge firms.

KIPENDA Chairman Joseph Karanja said this anomaly means the margins of retail outlets can be wiped out instantly by a supplier raising the wholesale price to within a whisker of the recommended retail price.

“The regulator has failed to control wholesale prices leaving the big oil marketers to manipulate costs to make a huge profit which is in turn affecting our margins,” Karanja said.

Price control in the fuel market began in December 2010 following the introduction of the Energy (Petroleum Pricing) Regulations 2010. 

The pricing structure sees pump prices remain 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 the ERC does not capture costs incurred from delays brought about by challenges in importation, storage, transportation and distribution of petroleum products to meet the rising demand.

The association argues the formula only regulates retail prices adding they are being supplied with the products at prices that cannot make business sense unless the retail prices are raised.

Karanja said the ERC also needed to factor the investment made by the independent marketers when calculating prices.

“Multinationals are given all the investment incentives needed to thrive in this market while local investors such as us are made to do everything ourselves and still expected to be competitive,” he said.

On Monday, the ERC capped the maximum pump price in Nairobi at Sh124.13 a litre for super petrol from the previous Sh121.

The ERC attributed the price hike to a weakening shilling from an import price of Sh96.68 in September to Sh101.96 last month.

The commission said it had factored in an additional 62 cents on wholesale prices, due to rising cost of financing.

As a result, the independents, who control 40 percent of the market, are unable to find adequate fuel leading to shortages.

“Multinational fuel companies are exploiting retailers through inconsiderate change of prices. In some instances retailers have been forced to contend with up to three price changes in a week,” Karanja lamented.  

At the same time the lobby group backed a group of MPs calling for the disbandment of the ERC on grounds it had failed to protect consumers from exploitative fuel price.

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