The puzzle of cheaper fuel in Dar, Kampala

It is now cheaper by up to Sh30 per litre for a Kenyan motorist to buy fuel in Dar es Salaam than in Nairobi, reflecting the steep taxation that Kenyans pay on the commodity.

Motorists in Uganda, a landlocked country that imports the bulk of its fuel supplies through Kenya’s Mombasa Port, are paying Sh6.59 less per litre of petrol in Kampala compared to the cost in Nairobi. To import fuel through Kenya, Uganda has to pay various port levies and fees, before incurring transport charges by road or pipeline for more than 1,165 kilometres through the Malaba or Busia border.

But despite these additional storage and transportation costs, this fuel retails cheaper in Kampala than in Nairobi. 

A spot check yesterday by the Nation in Kampala indicated that petrol was retailing at Ush3,890 per litre, which is equivalent to about 116 Kenyan shillings compared to the Sh122.81 per litre in Nairobi announced in Sunday’s review.

This is despite Uganda not having a fuel price control regime like Kenya. The price control was ostensibly introduced to protect consumers from exorbitant prices that were charged by oil multinationals.

Motorists in Dar es Salaam are the happiest in the region, given that they are now buying a litre of super petrol at Tsh1981. This is equivalent to 93.67 Kenyan shillings, which means that petrol in Tanzania’s capital is cheaper by about Sh29.14.

The same pattern is reflected on other petroleum products including diesel and kerosene in both Uganda and Tanzania.

Kenya and Tanzania share many similarities in their oil pricing. They both have a port and both have price controls on fuel, which caps the margins for oil marketers. However, a plethora of taxes imposed on the commodity has spoilt the party for the Kenyan consumer, who carries the heaviest burden.

After Sunday’s fuel price review by Kenya’s regulator, the Energy & Petroleum Regulatory Authority (EPRA), motorists in Nairobi are now buying a similar quantity at Sh122.81.

EPRA increased super petrol by Sh7.63 per litre, diesel by Sh5.75 per litre and kerosene by Sh5.41 per litre; pushing the fuel prices to a nine-month high.

 The double-digit increase, which is the fourth consecutive rise in the past four months, is set to push up the cost of transport, electricity and manufactured goods.

It has also exposed the pretention of Kenya’s political class on fuel prices, given that the same political class that supported the introduction of taxes are now the same ones that are leading the protests against the increases.   

Opposition party, the Orange Democratic Party (ODM), which was the first to issue a statement against the fuel hike, was instrumental in the passing of new taxes on fuel.

Opposition leader Raila Odinga in 2018 presided over a meeting of the National Super Alliance (Nasa) MPs at Orange House and whipped them into supporting President Kenyatta's proposal to impose eight percent VAT on fuel. The current fuel price formula was also passed by parliament.

Amani National Congress (ANC) leader Musalia Mudavadi yesterday also shifted the blame to the Ministry of Energy for failing to cushion Kenyans against the exorbitant fuel prices.

“They should take cognisance of the fact that it is the ordinary citizen who bears the brunt of the high petroleum prices. It is painful to imagine the plight of the widowed mother in Kibra, Kamkunji or Mathare, who currently earns less than Sh200 from washing clothes,” Mr Mudavadi said in a statement. “How is she expected to fork-out Sh94 on a litre of kerosene daily? Or the small businessman in Changamwe, Nyeri or Kisumu whose soap-making business is being strangled because of the high electricity costs?”

What the taxes do is increase the cost of fuel by 2.4 times. In the March review, taxes and levies will account for Sh57.33 for every litre of petrol in Kenya, which is more than 100 percent the actual cost of the commodity. There are at least nine taxes among them excise duty, road maintenance levy, petroleum development levy, and petroleum regulatory levy.

There is also the railway development levy, anti-adulteration levy, merchant shipping levy, import declaration fee and the Value Added Tax (VAT). Such punitive taxes are mostly seen on luxury products, and unnecessary imports.

Petrol levy

In July last year the government quietly introduced a 1,250 percent increase of petrol levy to Sh5.40 from Sh0.40, which has seen the taxman collect about Sh2 billion monthly from fuel consumers. 

But by slapping such heavy taxes on fuel, being what runs the economy, the government has ensured that it collects the maximum taxes from every drop. 

 EPRA, which has become the punching bag for the hikes, said the changes in this month's prices are as a consequence of the average landed cost of imported super petrol increasing by 14.97 percent from US$ 391.24 per cubic metre in January 2021 to US$ 449.82 per cubic metre in February 2021.

 EPRA says diesel increased by 12.29 per cent from US$ 377.55 per cubic metre to US $ 423.95 per cubic metre and Kerosene rose by 13.26 per cent from US$ 347.19 per cubic metre to US$ 393.23 per cubic metre.

 "EPRA wishes to assure the public of its continued commitment to the observance of fair competition and protection of the interests of both consumers and investors in the energy and petroleum sectors," EPRA acting director general Daniel Kiptoo said in the statement.

 The regulator announces new prices on the 14th of every month in line with the petroleum pricing regulations that are meant to cap wholesale and retail prices of petroleum products.

The regulations, which protect the margins for fuel wholesalers and retailers in the country, are meant to endure that importation and other prudently incurred costs are recovered, while ensuring reasonable prices to consumers.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in Kenya.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of fuel in their retail price, exerting pricing pressure across the economy with ramifications on the cost of living measure.

A majority of Kenya's population also relies on kerosene and gas for lighting and cooking, making a rise in its price a key determinant of the rate of inflation.

The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors with a direct impact on the cost of farm produce.

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