On 14th March 2021, the Energy and Petroleum Regulatory Authority (EPRA) released petroleum pump prices for the period 15 th March – 14th April 2021.
Following the release, a huge public outcry resulted primarily due to the spike of the current pump prices compared to previous months.
EPRA uses a formula outlined in the Energy (Petroleum Pricing) Regulations of 2010 to calculate the applicable petroleum pump prices. The computation takes into account the landed costs, supplier margins, Government taxes plus storage and distribution costs.
Petroleum is imported into Kenya through the Port of Mombasa and transported to the hinterland via the pipeline system operated by the Kenya Pipeline Company Limited (KPC). The last mile delivery of petroleum products from the KPC depots to the retail stations or other points of consumption is undertaken through road tankers. All these nodes form the supply and distribution system of petroleum that enables you to access Petroleum products at the points of use. It’s worthwhile noting that at the aforementioned nodes, the players involved in the business incur costs that are eventually reimbursed through the petroleum pricing process while at the same time ensuring a reasonable return to this particular group of investors.
Importation of Super Petrol, Diesel and Kerosene is a highly controlled process and licensed Oil Marketing Companies are obliged by Legal Notice No. 24 of 2012 to only import the aforementioned Petroleum products through the Open Tender System (OTS). The OTS is a highly competitive bulk procurement method that has been utilised for the purchase of petroleum in Kenya for the last 17 years. Since its inception in November 2003, the OTS has continuously assured the Kenyan Petroleum consumer of the lowest freights and premiums in the region.
The Free-on-Board (FOB) cost for each petroleum import used under the OTS is pegged on the world renowned benchmark, SP Global Platts. In early 2020, the World Health Organisation (WHO) declared COVID-19 a pandemic. As a precaution, many countries instituted restrictions of movements in order to contain the spread of the virus. The oil and gas industry across the global experienced sharp drops in demand for petroleum products which in turn depressed prices. By close of April 2020, the average FOB price of Murban crudeoil was recorded at US$17.64 per barrel, the lowest since the onset of petroleum pump pricing process in Kenya. Similarly, the price of refined petroleum products in the international markets plummeted with the FOB price of Super Petrol
recorded at US$169.80 per metric ton in April 2020.
Many countries across the globe eased restriction measures from the second half of May 2020 and due to the increased demand of Petroleum products, the prices in the international markets begun to recover. The price recovery was compounded by reduced output production by the Organization of the Petroleum Exporting Countries (OPEC).
As at the close of February 2021, Murban crude oil prices had increased by 249.26% from US$17.64 in April 2020 to US$61.61 per barrel in February 2021.Arising from the crude oil price increase, the FOB price of Super Petrol increased by 230.82% from US$169.80 per metric ton in April 2020 to US$ 561.74 per metric ton in February 2021. The OTS process mirrors the movements of petroleum prices in the international market and consequent to the increase in crude and refined product prices, the local pump price for Super Petrol has increased by 47.38% from KES 83.33 per litre in May 2020 to KES 122.81 in March 2021.
In 2018, EPRA carried out a Cost of Service Study of the Supply of Petroleum Products in Kenya (COSSOP) where the cost components at the various nodes along the supply chain were validated and benchmarked against the region and mature Petroleum markets across the world. It’s from the study that the current level of supplier margins, storage & distribution costs were set. Section 10(hh) of the Energy Act No. 1 of 2019, mandates EPRA to protect the interests of consumers, investors and other stakeholders and on this premise, the COSSOP study findings underwent intense stakeholder consultations prior to implementation.
Taxes and Levies form a key component of the petroleum pump price not only in Kenya but across many countries. The contribution of taxes and levies to the current pump price of Super Petrol is 46.68%, to that of Diesel is 42.24% while to that of Kerosene is 40.42%. A quick benchmark across the other world economies indicates that as of 2020 the tax contribution to the pump prices was as follows:
India – 69%,
Italy – 64%,
France – 63%,
Germany – 63%,
Britain – 62%,
Spain – 53%,
Japan – 47%,
Canada – 33% and
the United States – 13%.
Regionally the contribution of taxes to the pump price is as follows:
Uganda – 34.11%
Attached to this statement is the tax comparison within the region and the comparison of pump prices for various countries.
Based on the current outlook of petroleum prices, the Ministry of Petroleum and Mining is at an advanced stage of developing a framework for stabilization of petroleum prices which will ensure consumers are cushioned from petroleum pump price spikes. Part of the framework entails development of Regulations to administer the Petroleum Development Fund; the draft Regulations are at the final stages of development.
HON. JOHN K. MUNYES, EGH
MINISTRY OF PETROLEUM AND MINING.