The energy regulator is under pressure to reveal details of a multibillion shilling fund intended to protect Kenyans from high fuel prices.
Petroleum and Energy Regulatory Authority (Epra) chief executive Daniel Kiptoo told lawmakers yesterday that the Treasury has released 8.6 billion shillings from the Petroleum Development Levy Fund to stabilize fuel prices between April and August, before it was removed in this month’s review. saw the prices go up.
Mr Kiptoo, who was summoned by the National Assembly’s finance and planning committee to explain the sharp price increases, declined to reveal how much was left in the pot and why the subsidy was withdrawn.
The National Treasury drew on the pot to compensate traders after Epra slashed their margins, which kept diesel and kerosene prices at Sh 107.66 and Sh 97.85 per liter respectively between June and August.
The price of gasoline was capped at 127.14 shillings during the same period.
“My quick calculations from the monthly fuel consumption figures you provided show that the Fund should have had more money by the time the subsidy was removed,” the Homa Bay representative told Mr. Kiptoo. and committee chair, Gladys Wanga.
“Explain why the grant was withdrawn when the fund was not exhausted.”
The contribution to the fund was increased to Sh5.40 per liter on gasoline and diesel from Sh0.40 last year.
The money is to be used for the development of the oil industry and the stabilization of fuel prices.
“The stabilization of petroleum products is a matter of policy. I don’t know why the subsidy was removed. The right person to answer that is the Secretary of the Treasury Cabinet,” Kiptoo said.
The boss of Epra appeared before the committee alongside the managing director of Kenya Pipeline Company (KPC), Macharia Irungu.
Mr Kiptoo said the high fuel costs are due to the increase in landing costs since October last year following an increase in international demand for crude.
He said the average landed cost of gasoline increased 66.57 percent to Sh 60.35 from Sh 36.23 per liter as of October 2020.
That of diesel, Kiptoo told parliamentarians, rose 58.98 percent, from 33.59 shillings to 53.88 shillings per liter, while a liter of kerosene jumped 77.85 percent to 54. , 44 shillings of 30.61 shillings during this period.
“Fuel is a globally traded product and we source it through the open tendering system, which is very competitive,” Kiptoo told the committee.
“This means that our prices mirror those of the international market. If global fuel prices increase, so will ours.”
The head of Epra was also asked to explain the fuel pricing formula and why it has not been revised for the benefit of consumers since its inception in 2010.
“We have reviewed the formula over the years. Kenya’s petroleum pump pricing framework uses a cost-plus method. The price at the pump is therefore a sum of the cost of the product, the actual costs of the supply chain, margins, levies and taxes. he said.
“The costs taken into account in the pump pricing formula were validated in 2018 thanks to a vast service cost study in the supply of petroleum products or Cosop. “
He informed lawmakers that the VAT charged on fuel is a tax on the tax as opposed to an actual fuel tax, which means consumers pay more tax.
“You have to tell us if VAT is charged on fuel on landing or if it is after adding taxes and levies,” Ms. Wanga told him.
Sigor’s MP Peter Lochakapong embarrassed Epra on his tenure, saying the energy regulator is not doing its job efficiently.
“How can you justify your existence as Epra? We have to ask ourselves if Epra is a necessary entity, given the proportion of the cost of fuel that goes to its operations,” Mr. Lochakapong said.
The authority gets 0.25 shillings for every liter of fuel sold as a regulatory petroleum levy.
Mr Kiptoo said Epra made 1 billion shillings from the levy in fiscal year 2020/21 and expects to collect 1.2 billion shillings in this fiscal year.
“Our mandate has been broadened and is not limited to calculating monthly fuel prices. We also deal upstream with oil, electricity and renewables,” Kiptoo said.
The Epra boss added that fuel consumers are parting with 110 million shillings in demurrage every month due to unloading delays at the port of Mombasa.
He said the annual costs amount to 1.3 billion shillings.
What should worry consumers more is Mr Irungu’s admission that KPC has the capacity to manage fuel supplies for only seven to ten days.
This means Kenya cannot maximize the record fuel prices recorded last year.
“We have not been able to take advantage of the low global fuel prices due to the limited storage capacity,” he said.