Oil and gas products play a very big role in our day to day activities. This could be from the clothes you are wearing, to the means of transport you used today. If you are in Kenya like me, you might be wondering, who determines petroleum prices in Kenya?
That is a good question and one that I intend to answer. This is a very common question and given my interest in ensuring that you have the right information, I went and did some research. In this article, I provide you with the answer to the question of who determines petroleum prices in Kenya.
Who Determines Petroleum Prices in Kenya?
The petroleum or gasoline prices in Kenya are determined by the Energy and Petroleum Regulatory Authority (EPRA) on a monthly basis. New petroleum prices are published on every 14th day of the month.
The authority determines the petroleum prices by a formula for both retail and wholesale prices. EPRA provides the guidelines on the maximum and minimum fuel or gasoline prices in Kenya on a monthly basis.
This system of regulating and determining the petroleum prices in Kenya was introduced as a way to protect the consumers.
Role of EPRA in the Petroleum Subsector
- Review of government policy on petroleum;
- Governing the petroleum sector with focus on licensing, issuing of construction permits, developing standards for bulk petroleum transportation and petroleum costs and prices monitoring;
- Take the lead in the formulation, review and enforcement of rules, regulations and codes for the petroleum sector;
- Identifying gaps in EHS and developing interventions to address the gaps to ensure that EHS clearly understands standards and rules that it is expected to regulate. This will include the review and enhancement of existing standards.
How EPRA Sets Fuel Prices in Kenya – Petroleum Tariff Setting
The Authority undertakes retail pricing of petroleum products (Diesel, Super Petrol and Kerosene) as stipulated in the Energy (Petroleum Pricing) Regulations, 2010.
The Pricing Regulations introduced a formula that EPRA uses in determining the maximum retail pump prices of Super Petrol, Regular Petrol, Diesel and Kerosene (the Regulated Products).
Retail Petroleum Pricing in Kenya
For super petrol, kerosene and automotive diesel, the Pricing formula used is:
Pr = Pw + mr + z
- Pr = the maximum retail pump price of super petrol, regular petrol, kerosene or Automotive diesel applicable, in shillings per litre;
- mr = the allowed maximum retail gross margin as set out in the Third Schedule;
- z = the delivery rate from the nearest wholesale depot to a retail dispensing site in Shillings per litre as set out in the First Schedule.
While determining the wholesale and retail prices for petroleum products, Economic Regulations incorporates the costs as indicated in the first and second schedule of the Energy (Petroleum pricing) Regulations, 2010.
The retail pump prices for Super Petrol, Automotive Diesel and Kerosene are published monthly on 15th of every month.
Wholesale Fuel Pricing in Kenya
Pw = Cu (1+ Lp + Ld)+ K (1+ Ld) +mw
- Pw = the maximum wholesale price for super petrol, kerosene or Automotive diesel;
- Cu = the weighted average cost in shillings per litre ex the Kenya Petroleum Refineries Limited (KPRL) and ex Kipevu Oil Storage Facility (KOSF).
- K = the transportation cost from Mombasa to the nearest wholesale depot, which is made up of x percent of pipeline tariff (Kpt) and (100 – x) percent of road bridging cost (Krd) as set out in the First Schedule.
- Lp = the allowed losses in the pipeline as set out in the Second Schedule
- Ld = the allowed losses in the depot as set out in the Second Schedule;
- mw = the allowed oil marketing company’s gross wholesale margin as set out in the Third Schedule.
How Fuel Prices Are Set in Kenya
Petroleum prices in Kenya directly affect the prices of goods made with petroleum products. They also indirectly affect such costs as manufacturing and transport.
That is why it is important to understand who determines the petroleum prices in Kenya. This will help you when undertaking your business in terms of the costs associated with fuels and transport.
Petroleum prices in Kenya are significant for the economy in both the short-term and long-term. A rise in petroleum prices has a consequence of a rise in the cost of living.
Determination of Petroleum Prices – Consumer Price Index
There is a direct relationship between the prices of petroleum and the consumer price index in Kenya. High petroleum prices usually lead to a rise in the consumer price index, It is also worth noting that as petroleum prices go up or down, inflation follows in the same direction.
In this regard, the work done by the Energy and Petroleum Regulatory Authority in determining the prices of petroleum in Kenya plays a big role in the economy.
Considering that most consumer products in Kenya are transported by road, manufacturers and transporters will pass the additional fuel costs to you, the final consumer.
Kenya is a net importer of petroleum products. Therefore, the country is exposed to the global trends in the crude oil and gas prices. EPRA regulates all the prices of the petroleum products in the country.
Energy and Petroleum Regulatory Authority – EPRA in Kenya
As mentioned above, EPRA determines the petroleum prices in Kenya. This authority does this using a formula that they set to determine the maximum and minimum prices of fuels across the country.
The determination of petroleum prices in Kenya is done on a monthly basis. The monthly prices update provides the guidelines on the maximum and minimum fuel prices in Kenya.
By raising or lowering the maximum or minimum prices in Kenya, EPRA regulates how much a consumer pays at the pump or petrol station across the country.
The purpose of the petroleum pricing regulations is to cap the wholesale and retail prices of petroleum products in order to ensure that customers get reasonable prices.
Determination of petroleum prices in Kenya by EPRA takes into consideration the buying price of the crude oil in the international markets.
In addition, the pricing considers transportation costs both in the ocean and on the road or rail, customs, duties, taxation, currency conversion and handling fees among others.
Who Determines Petroleum Prices in Kenya – Taxation Component
While Energy and Petroleum Regulatory Authority determines the gasoline prices in Kenya, it is important to also understand the role taxes play in the final pump prices.
The biggest component in the final petroleum prices in Kenya is actually taxes. Taxes take up over 35 per cent of the final fuel prices at the petrol station. Taxes share of fuel prices in Kenya is highest for petrol and lowest for kerosene.
The rise or fall in international crude oil prices, in turn leads to the increase or decrease in fuel prices in Kenya. It is therefore important or understand that petroleum prices in Kenya is driven by several factors. These include general economic activities, global demand, crude oil prices and fiscal regime.
Fuel Subsidy in Kenya
But motorists are on course to enjoy a State subsidy on fuel after global crude cost rose above $50 per barrel, a level that allows diesel users to get rebates from the government.
The Ministry of Energy reckons that Kenyans will not bear costs of diesel prices above $50 a barrel in a subsidy scheme that excludes petrol.
The subsidy will be supported by billions of shillings raised from fuel consumers through the Petroleum Development Levy, which was increased to Sh5.40 a litre in July from Sh0.40 or a 1,250 per cent rise. The subsidy is meant to cushion consumers from volatility in fuel prices.
In conclusion, petroleum prices in Kenya affect the entire economy. It is therefore one of the key things to watch for when deciding how to do business in Kenya.
Determination of petroleum prices in Kenya by EPRA is therefore a key economic enabler. It gives an indication of the how the inflation and cost of living will be in the month following the fuel price adjustments.