EXPERT OPINION

EPRA announcement raises more questions than answers

Did the appreciation of the Kenyan shilling cancel out all the corresponding increase in landed prices?

In Summary
  • Pump pricing is too crucial to the economy to be left to what appears to be guesswork.
  • To cushion Kenyans from the volatility at the pump, there is a need to address the issue of strategic oil reserves.
A pump attendant at Petro Oil petrol station in Malindi serves a client
A pump attendant at Petro Oil petrol station in Malindi serves a client
Image: FILE

The Energy and Petroleum Regulatory Authority has pulled a fast one on Kenyans.

While many expected a surge in pump prices, their announcement of no change in fuel pricing has come as a good surprise.

As good as the news is, however, the vagueness of the explanation as to why there was no change at the pump further cements questions on pricing, taxation and the need for strategic oil reserves.

In the statement, EPRA indicated that the landed cost of super petrol increased by 9.24 per cent, diesel by 4.77 per cent and kerosene by 7.29 per cent.

Over a similar period, the Kenyan shilling appreciated by 0.04 per cent to the dollar. By keeping pump prices at the price they were last month, EPRA is telling Kenyans that they assumed the changes, or that the changes were too small to warrant any increase in fuel prices.

The decision begs the following questions: Did the appreciation of the Kenyan shilling cancel out all the corresponding increase in landed prices? 

Where is the calculation? Did EPRA access some money to cushion the price change? Was the decision made in fear of the impending public outcry and demonstrations in an economy that is already feeling the heat of the Covid-19 pandemic? Is the pricing a guess game?

Pump prices are essentially the engine of the economy.  When they rise, they result in a drag impacting every sector of the economy. Pump pricing is too crucial to the economy to be left to what appears to be guesswork.

To cushion Kenyans from the volatility at the pump, there is a need to address the issue of the strategic reserves.

As far back as 2008, NOCK had in place proposals to increase import volumes draining into a strategic reserve that was to hold one billion litres — equivalent to three months' consumption.

This would mean stable prices for on average every three months as opposed to monthly reviews.

The current capacity is 645 million litres that can only last a maximum 40 days.

It is also time to effect the subsidy scheme introduced in July last year to cushion Kenyans from oil prices above $50 a barrel.

But first, can EPRA come clean on the mathematics leading to the pump prices?

The economist spoke to the Star