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World Bank now questions high fuel prices in Kenya

The World Bank Group has joined a growing chorus of voices questioning the efficiency of the government’s price-setting role in the oil segment as marketers retain the biggest chunk of gains from falling crude prices.

The bank’s lead economist for Kenya Apurva Sanghi said the price controls by the Energy Regulatory Commission (ERC) have denied consumers the full benefits of low crude prices.

The ERC reduced the price of petrol – used to run private cars – by Sh1.42, while diesel – which is used to power industrial machinery, trucks and buses – fell by Sh1.81.

DISQUIET

The marginal cuts have sparked disquiet among consumers with a member of Parliament pledging to petition the Speaker to discuss pump prices immediately Parliament resumes.

“In Kenya, like in other sub-Saharan African countries, a large part of oil price decline has not been transmitted on to consumers,” Mr Sanghi told the Business Daily.

“The evidence so far shows that that the pass-through effect has been lower in sub-Saharan Africa compared to other parts of the world, largely because of price regulations,” he added.

Kenya bought its current petroleum stocks last month as crude prices tumbled to an 11-year low of $37 a barrel, down from $43 in November, a 14 per cent drop.

MARKET TRENDS

There is a one-month lag between the placing of supply orders and the actual delivery of consignments at the Mombasa port, meaning local prices do not immediately reflect global market trends, but are at least one month behind.

The ERC has, however, said that the import cost of refined petroleum varies from that of crude hence the disparity, a position that Mr Sanghi has acknowledged.

READ: Pain at the pump as ERC fails to pass on drop in global oil prices

Kenya buys refined petroleum products after its sole refinery in Mombasa was closed in September 2013, denying the country the full benefits of the lower crude oil prices.

Petrol retails at Sh88.64 a litre in Nairobi while diesel costs Sh76.70 a litre.

“Declining international oil prices should lower domestic prices and boost aggregate demand,” said Mr Sanghi.

CARTEL BEHAVIOUR

The energy sector regulator started controlling fuel prices in December 2010 to shield consumers from cartel-like behaviour in the petroleum retail market.

But consumers have more recently complained that the controls are being used to block them from enjoying the fruits of a competitive market.

SOURCE: Business Daily