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Officials at Kenya’s troubled oil refinery have asked Parliament to investigate the high cost of petroleum products despite the removal of refinery charges from the monthly pricing.
Officials at Kenya’s troubled oil refinery have asked Parliament to investigate the high cost of petroleum products despite the removal of refinery charges from the monthly pricing.

In a letter to the Public Investments Committee, Kenya Petroleum Refineries Ltd notes that its products are more expensive by Sh1.5 a litre than direct imports but questions the current prices increases since December.

“We expected the fuel prices to be cheaper by Sh10 a litre. This has not happened despite other factors like the international crude price and exchange rates remaining largely unchanged,” reads the letter.

Based on data published by the Energy Regulatory Commission on actual product costs and prices for the last 30 months and the country’s actual consumption data published by the Petroleum Institute of East Africa, price of products sourced from the refinery are, on average, higher than those on imported products by Sh2.50 a litre.

Considering the low volume of products from the refinery relative to the country’s total consumption estimated at 300 million litres a month, the net effect on the consumer is at approximately Sh1.50 per litre, the energy commission said.

Oil companies have in the past claimed that the phasing out of locally refined products at the refinery would significantly lower prices by up to Sh10.   

Refining was stopped on September 4 2013, after all the crude oil in the tanks had been processed. Since July 1 last year oil marketers have not been buying fuel from the refinery following the expiry of an interim agreement and failure to reach a permanent pact with the oil marketing companies.

With the monthly demand for liquid fuel in Kenya at over 300,000 tonnes (a tonne has 1,164 litres), as totals of kerosene, diesel, super petrol, liquid petroleum gas and bitumen, the refinery has in the past three months delivered between 5,000 to 10,000 tonnes of its own processed products every month.

“This contribution is less than 0.02 per cent to the overall market demand and has nil effect on the pump price,” said plant engineer Kinyua Thuku in an e-mail. When the refinery’s stocks were exhausted in February they were factored in for the last time in the mid-March review - consumers were expecting a major reduction in pump prices. But a quick look at the trend of fuel prices over the past six months on the ERC website shows that the pump prices have actually increased by an average of more than Sh4 per litre over this period. Kenya imports fuel from India and the Gulf States.

Over the past six months, the exchange rate to the dollar has averaged between Sh85.31 and Sh87.41, and the price of the benchmark Murban crude oscillated between $117.70 (Sh10,062) and $113.85 (Sh9,804) per barrel (159 litres).

With taxes, the cost of crude or white products accounts for two-thirds of the cost of fuel. Crude prices remained relatively even for most of last year, stabilising consumer prices and shielding the shilling from volatility.

The cost of demurrage, or the penalties charged by shipping lines for vessels kept beyond agreed grace periods, also dropped in the six months to December 2013.

In the last review for the period March 15 to April 14 the price of super petrol went up by more than Sh2 per litre to Sh103.61 per litre, while kerosene also rose by 83 cents to Sh83.91; diesel was the only product to drop its price by 93 cents a litre to retail at Sh104.87 per litre in Nairobi. The costs vary from town to town.

ERC has cited growing markets for both crude oil and refined products and a deterioration in the exchange rate as reasons for the increased prices.

“Taking into account the average cost of imported products, the overall result is that the maximum allowed price of super increased by Sh2.06 a litre and kerosene by Sh0.84,” said ERC director for petroleum Linus Gitonga.   

Marketers blame market volatility and exchange rates for the trend. Mr Polycarp Igathe, managing director of Vivo Energy, attributed the delay in product off take from KPRL by a section of marketers.

“KPRL had stocks lasting close to one year after shutdown that are still factored in pump prices. Theseprices didn’t fall aggressively by Sh8 to Sh9 per litre,” he told Sunday Nation.