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Mr Kinyua told Sunday Nation that the impact of the tax on these products is negligible, as taxation is fixed in shillings per litre and not on a percentage of oil products moved.
“The tax on a litre of petrol is Sh29.35, kerosene Sh7.66 and diesel Sh19.75. Designing a price formula agreeable to government and marketers could make fuel affordable for consumers,” he said.
Last month, President Kibaki directed the ministries of Finance and Energy to explore the possibility of reducing taxes on petrol, diesel and kerosene.
The apparently skewed taxation formula was introduced in 1981 to encourage use of diesel as the economy driver, and kerosene as poor man’s fuel. Before then, taxes on petroleum products were levied uniformly.
According to Energy minister Kiraitu Murungi, the government will in January next year introduce price control for petroleum products after the expiry of 40 days notice issued by Energy Regulatory Commission.
“ERC has published proposed rules for control of retail pump prices of petrol, diesel and kerosene and given stakeholders 40 days to submit written views,” he said.
It is feared that price control will create shortages and make investors pull out of the country because of the risk of incurring losses. Marketers can also refuse to import petroleum products if they disagree with the government.
“We are studying the proposed pricing formula. We do not know what the final decision will be, hence cannot speculate on the impact it will have on the market,” said Shell’s external affairs manager, Ngaari Mwaura.
The proposed pricing formula has been copied from South Africa. Kenya imports crude oil and refined fuel from the Middle East through the open tender system administered by Ministry of Energy.
Petroleum Institute of East Africa general manager George Wachira said the industry is studying the pricing formula and will respond to the ERC before 40 days lapse.
He said the South Africa pricing model is reviewed monthly in tandem with fluctuations in the international market of oil and the pump price is based on a Basic Fuel Price.
It is calculated on what it cost an importer to get petroleum products from an international refinery and transport the fuel to South Africa. The government and local refiners have no control over the formula, as it is worked out by a third party, based on international prices.
Mr Wachira said the oil industry is examining ERC’s formula in relation to supply and refining economics, distribution systems, marketing economics (retail and wholesale), financial (profit and loss) and legal framework.
The escalation of the cost of oil products from the beginning of this year caused by speculation and geopolitics, among other factors, has prompted calls for government intervention through reverting to price control or reviewing the taxation structure.
Pricing was liberalised in October 1994. Every marketing company determines its own price. Kenya gets 60 per cent of fuel through processing crude oil in Mombasa. The balance is imported as refined products.
The ERC has proposed to fix the delivery rate of oil products within a 40km radius from a distribution depot at Sh42 plus value added tax, and Sh12 per litre for 1,000 litres of fuel outside town.
Distribution depots are petroleum receipt, storage and truck loading facilities owned by companies in Nairobi and Mombasa and by the Kenya Pipeline Company in Nakuru, Kisumu and Eldoret.
Retail prices will be determined with consideration of weighted average cost per litre at Kenya Petroleum Refineries Ltd and the Kipevu Oil Storage Facility in Mombasa.
Other factors are volume of refined fuel imported through open tender system and products obtained from crude refined at KPRL the previous month with unit cost, taxes, levies and shilling dollar/exchange rate.
Computation covers pipeline tariff from Mombasa to the nearest depot, including allowed losses in shillings and allowed combined gross margin of 10 per cent for marketing and dealers in oil business.
The pipeline tariff for transporting fuel to Nakuru is Sh2.105 per litre plus VAT, Kisumu is Sh2.703, and Eldoret Sh2.706.
PARASTATAL heads who signed the Mombasa port community charter risk being sacked if their agencies do not deliver on the contents of the new entity. The charter signed between the government and the private sector aims at improving the movement of cargo from the port into hinterland