Monday, February 12, 2007

Government’s Hand in High Petrol Prices

Government policy is partially responsible for the high petrol prices in Kenya. Equally destructive is the recently passed Energy Bill, which seeks to control petrol prices but does little to question KPC’s storage charges, local refining fees, and several bureaucratic conditions set by domestic regulators.

The Bill popularizes the idea that distributors are to blame for the Wananchi’s pain at the pump. It’s also awkward that the flawed Energy Bill had a heavy backing from the World Bank, which warned on being “deterred from funding the (energy) sector if the Bill was not passed rapidly.”

Following are some of government actions that have contributed to the high petrol prices:

  • Finance Minister Kimunya’s 2006/07 budget increased fuel levy tax by 55 percent (from Shs 5.80 to 9.00 per litre of petrol).
  • Kenya Petroleum Refinery, which is owned by the government and two other multinationals, increased crude oil refining fee from Sh2.90 to Sh3.58 per litre, a 22 percent increase.
  • The state owned Kenya Pipeline Company increased storage charges by 33 percent (from $2 to $3 per cubic metre).
  • Distributors are required to process 70 percent of their crude oil at the inefficient Mombassa plant. Only 30 per cent of processed petroleum can be imported from the Middle East, which has cheaper refining costs. (See The Standard).

Kenyanomics says: It makes no sense to target distributors yet the government is robbing Kenyans in broad daylight.

No comments: