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December 12, 2018

ERC hints at alarming increase in fuel prices in Tuesday review

"If implemented, the new prices will take effect on September 1 and will see an increase of about Sh15 to Sh17 per litre. This will see petrol retail at about Sh130 per litre." /FILE
"If implemented, the new prices will take effect on September 1 and will see an increase of about Sh15 to Sh17 per litre. This will see petrol retail at about Sh130 per litre." /FILE

The Energy Regulatory Commission has hinted that fuel prices are likely to increase in Tuesday's review.

CEO Pavel Oimeke told KTN on Monday that the proposed 16 percent VAT on fuel products, as announced by Treasury CS Henry Rotich in June, will make the prices higher.

If implemented, the new prices will take effect on September 1 and will see an increase of about Sh15 to Sh17 per litre.

This will see petrol retail at about Sh130 per litre. For the past three months, a litre of super petrol has cost about Sh108 in Nairobi, Sh110.74 in Kisumu and Sh105.51 in Mombasa.

The chief executive noted that the prices are determined by the National Treasury, not the commission.

The changes come in the wake of Treasury's move to implement the International Monetary Fund (IMF) financial assistance programme. This stems from IMF's review of the performance of its Sh150 billion forex insurance programme with Kenya.

"We are still waiting for clarification from the National Treasury. As a regulatory agency, we will be guided by the government’s position," Pavel said. "I am not sure whether [the prices will] go up or down. We will cross that bridge when tomorrow comes."

He said the cost of inflation is likely to go up "because everybody, in one way or another, is impacted."

Pavel said that the common mwananchi will carry the heavy burden of the expected increase in levies. He noted the most immediate impact will be on the transport sector, with the increased cost of fuel likely to spark an increase in matatu fares.

The director general explained that when setting up prices, ERC takes into account factors including the landed costs of products. He said this is defined by the price of crude oil internationally.

Shipping and transportation, road maintenance levies and dealers' margin - which are all regulated by the commission - are what constitute the petroleum prices.

"Oil marketing companies do not decide the margin. It is actually regulated and controlled so they are not at liberty to charge whatever they want."

Pavel added: "Landed costs of products, taxes, distribution and storage costs and dealers margin(cost of doing business) are what make your fuel prices high."

He said the regulatory body, in its comparisons, has established that the cost of fuel in Kenya is the same as in Tanzania and Uganda.

"When we were at about Sh106, Tanzania was at about Sh104," the ERC boss said.

He said that prices in Kenya were cheaper than in the US, Germany and the UK.

On electricity, Pavel said the current tariffs are lower because of the scrapping of the Sh150 fixed charge. He said "Kenyans need to pay taxes" and that they should wait for their bills before speculating.

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