ERC Has Failed,Kenyans Are Not Enjoying Low Global Fuel Prices.

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A barrel of oil which is approximately 119.24 litres costs $30 in the international market.This is equivalent to Sh 3000 for 119.24 litres or Sh 25 per litre.

If the government or suppliers are buying a litre at Sh 25, why are we buying it at Sh 84?

The government has also through ERC capped wholesaler margin to Sh 6 and retailer margin to Sh 3. If tentatively it cost Sh10 per litre to ship from Middle East to Kenya and Sh 10 per litre as local transport, then almost Sh 30 per litre goes to the government as tax.

The following are taxes levied on petroleum in Kenya.

Taxes Levied;

•         Excise duty

•         Road maintenance levy

•         Petroleum development levy

•         Petroleum regulation levy

•         Kipevo storage facility charges

•         Excise duty remission

Pipeline tariffs for every litre are as follow;

•         Mombasa = Sh 0 Plus VAT

•         Nairobi = Sh 2.25 Plus VAT

•         Nakuru = Sh 3.095 Plus VAT

•         Eldoret = Sh 3.98 Plus VAT

•         Kisumu = Sh 3.95 Plus VAT  Delivery rate is;

•        Sh 0.44 Plus VAT within town and 40km radius

•         Sh 10 per kilometer per 1000 litters Plus VAT outside the town.

In December 2010, the minister of energy then, Kiraitu Murungi, facilitated passing of the energy bill which would allow Energy Regulatory Committee (ERC) to control oil price.

This was then viewed as a good way of controlling cartels that were extorting consumers by charging exorbitant prices.   They resolved to be announcing the price every month which would be effective from 15th of that month until 14th of the following month. We wonder if this control in a free market is effective.

From a consumer’s perspective, ERC has failed as we are not enjoying low global fuel prices.

Kenya imports around 50,000 barrels per day or even more. This is equivalent to 6,000,000 litres where if government manages to collect Sh 30 per litre they earn 180 million per day.

In a year, this equates to Sh 21.6 billion. This is enough to fund all education expenses in Kenya. Government has petrol stations (National Oil) meaning they even earn more.

Why then do they charge many and high taxes when we need energy to grow our economy? That is a topic for another day.

In the international market, oil price refer to spot price of a barrel of a benchmarked crude oil. Brent Oil is the name given to the oil produced in the North Sea and is sweet and light, crude oil with ‘sweetness’ and ‘lightness’ is of high quality.

Price depends on quality or grade of the petroleum. It ranges from heavier, sour crude oils lacking in tidewater access, which are less expensive than lighter, sweeter oil.  Just as OPEC was formed in 1950’s to control cartel such as Seven Sister, ERC was formed.

But unlike OPEC who control prices by force of demand and supply the ERC uses taxes. Lower price leads to lower food prices as food production become cheap.

Other sectors in developing countries like Kenya are able to increase their production. From the above its evidence that lower oil prices is blessing.

Many nations are and have been able to benefit from it.   When energy becomes affordable, people become empowered. We hope ERC would join the rest of us calling for oil price reduction.

By Gathathai Mwangi


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