Oil marketers pushing for price hike in latest review

Kenyans could be bracing for a potential increase in fuel prices as major oil marketers push for a review of the country’s fuel pricing formula.

Oil marketers argue that the current system, unchanged since 2018, is outdated and does not reflect rising costs throughout the supply chain. This could lead to shortages if not addressed, they warn.

This comes as the Energy and Petroleum Regulatory Authority (Epra) starts reviewing a Cost of cost-of-service study (Cosop) submitted last week. The study will assess the true cost of supplying petroleum products in Kenya and could inform adjustments to the pricing formula, The Standard has established.

“The pricing formula hasn’t changed since 2018, and this discussion has been ongoing for a while,” said Marc Jacquot, group chief finance officer (CFO) of French-headquartered Rubis during a virtual global investor briefing last week. The fast-growing Rubis is one of the leading oil marketers in Kenya and has massive expansion plans locally. 

“There’s been some progress, but a specific time line is uncertain.” The Cost of Service Study (that was submitted to Epra aims to assess the true cost of supplying petroleum products in Kenya and inform any necessary adjustments to the pricing formula.

The outcome of this review could determine whether adjustments to the pricing formula are necessary. The Standard had not established additional details from the energy regulator by press time, yesterday, on when the review will be finalised.

If the formula is adjusted, it could lead to higher pump prices for consumers.

Any increase in fuel prices could also have a significant impact on the cost of living and transportation costs, potentially affecting various sectors of the economy.

However, oil marketers believe that a more accurate pricing mechanism is necessary to ensure the sustainability of the fuel sector and prevent potential shortages. A well-calibrated pricing formula is essential to ensure the availability and affordability of fuel products while maintaining a healthy market, they say.

“The pricing formula has not changed since 2018, and this is something known in the industry and this is a discussion that has been ongoing for a while. Major milestones have been reached typically the cost-of-service study. It is a major milestone that did not happen in the past,” said Rubis CFO.

“Today, Epra in Kenya is reviewing this study. It (review) took more time than expected, but we are confident it will happen by the end of the year or even next year. We cannot, of course, commit to that and we have already been disappointed, but we see some good movement there.”

He added: “Epra has ordered a report which is called Cost of Service Study in the Supply of Petroleum Products which was supposed to be issued mid-year and give way to the adjustment of the pricing formula. The issuance of this report has been slightly delayed and was submitted to the Epra last week and the industry is waiting for the outcome and the subsequent adjustment of the pricing formula.”

The government had separately recently confirmed it is set to reform its fuel pricing mechanism, potentially leading to higher fuel prices. The government told the International Monetary Fund (IMF) that it aims to align domestic fuel prices with budgeted resources and completely phase out fossil fuel subsidies to enhance its financial discipline.  The National Treasury and the Ministry of Energy and Petroleum said they are working to strengthen the Petroleum Development Fund (PDF), which is used to stabilise fuel prices. An upcoming audit by the Auditor General will assess the fund’s management and the overall fuel pricing mechanism.

“We are taking decisive steps to ensure that decisions on domestic fuel prices are aligned with budgeted resources,” the government said in correspondence to the IMF seen by The Standard.

“To ring-fence the resources budgeted for price stabilisation purposes, we have assessed the governance structure of the PDF and recommended actions to strengthen its management.”

Parliament separately recently approved an increase in the Road Maintenance Levy Fund rate from Sh18 to Sh28 per litre of petrol and diesel. The move, approved by the Committee on Delegated Legislation, aims to boost funding for road infrastructure development.

Despite concerns about potential fuel price increases, government officials have assured that there will be no immediate impact on pump prices. The increased levy is intended to be absorbed by the government without passing the cost on to consumers, they said. 

The planned IMF-backed Auditor General’s audit will evaluate how funds are used in the PDF and the overall fuel pricing mechanism.

The review aims to establish clear parameters for price stabilisation that consider market fluctuations, exchange rate developments, and the financial health of oil marketing companies.

“Consistent with our requests for access under the IMF’s Resilience and Sustainability Facility (RSF), we are committed to transitioning to a low-carbon economy by avoiding fossil fuel subsidies going forward,” the government says.