Fuel pricing: Davis Chirchir questions dollar rates
Cabinet Secretary for Energy and Petroleum, Davis Chirchir, during the launch of the Electric Vehicle Charging and Battery Swapping Infrastructure Guidelines on September 14, 2023 in Nairobi.
What you need to know:
- It remains to be seen whether the State will make good its bold statement to compensate consumers at the pump in the next review.
- The drop in pump prices, the biggest since October 2021, came at the back of the continued fall in global prices of refined oil.
The fuel pricing formula is in the spotlight after Energy and Petroleum Cabinet Secretary Davis Chirchir questioned higher dollar rates used by the industry regulator to set costs of petroleum products.
The CS on Friday directed the Energy and Petroleum Regulatory (Epra) to get directions from the Central Bank of Kenya (CBK) on the dollar exchange rates to be used in calculating pump prices, claiming that some banks cited rates as high as Sh3 more, potentially impacting consumers a bigger reduction in pump prices.
Fuel prices went down by an average of Sh5 per litre as a litre of super petrol dropped to Sh212.36 in Nairobi from Sh217 while that of diesel went down to Sh201.47 from Sh203.47 in the new monthly cycle that ends on January 14, but Mr Chirchir’s statement means that the prices should have dropped by an even bigger margin.
Epra used a rate of Sh157.52 to the dollar, average rate as provided by the banks tasked with buying dollars from the market compared to the prevailing CBK rate of Sh153.11.
“For the month obtained, if we employed Sh157 to the dollar but CBK tells us that the rate should be about Sh154, then we shall claw in the next announcement on 14th. Why is one bank opening the spread at Sh160 to the dollar when the market should be at Sh153?” Mr Chirchir posed.
He added: “We have to use the interbank as computed by the Central Bank of Kenya and not individual banks.”
Besides super petrol and diesel, the price per litre of Kerosene — mainly used for lighting and cooking by low-income households — also dropped to Sh199.05 from Sh203.06.
It remains to be seen whether the State will make good its bold statement to compensate consumers at the pump in the next review to be in place from January 15 next year.
Epra Director General Daniel Kiptoo confirmed that they wrote to the apex bank on Friday for advisory on the correct rate, even as Mr Chirchir holds that the State will compensate consumers in the next pricing cycle.
“We wrote to the CBK as directed by the CS and we are waiting for an advisory on the matter. They (CBK) are the authority on matters about the exchange rates,” Mr Kiptoo said.
Unlike under the Open Tender System where all oil firms purchased dollars to pay for fuel imports, a few banks, including KCB Group, are currently tasked with buying the greenback from the market to pay for fuel under the government-to-government deal that started in April .
Galana, Gulf Energy and Oryx — the local oil firms nominated by Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company to import fuel on behalf of all the other local firms — are the only ones that pay for the fuel in dollars.
The rest of the local oil firms pay for their fuel quotas in Kenya shillings, with KCB Group and a few other banks then going to the market to source for dollars to convert the entire payments made in the local currency, for payment of the fuel imports.
Kenyans have for the past few months grappled with record high prices but global costs have been on a sustained drop, raising hopes amongst Kenyans for a relief at the pump.
The drop in pump prices, the biggest since October 2021, came at the back of the continued fall in global prices of refined oil as demand wanes in China and US, and production cuts announced by the Organisation of Petroleum Exporting Countries (Opec).
The landed cost of super petrol dropped by the biggest margin of 16.1 percent to $694.44 (Sh109,388) from $827.75 (Sh128,831) per cubic metre. That of diesel fell 5.43 percent to $826.01 (Sh130,113) from $873.42 (Sh135,939) using the October and November exchange rates.
