Parliament investigates ERC over oil price-fixing claims

The National Assembly is investigating claims that the energy regulator could be abusing its mandate of setting fuel prices.

Parliamentary Committee on Energy, Communication and Information chairman Jamleck Kamau told Weekend Business that as a committee they are concerned over the Energy Regulatory Commission’s ‘behaviour’ of not passing full benefits whenever global fuel prices come down.

“We cannot allow this to continue. We are summoning the officials of Energy Regulatory Commission (ERC) next week to explain to us how they come up with these prices,” said the Kigumo MP.

Oil has now halved in value since June, with analysts saying this tumble in global crude oil prices to below $50 (Sh4,550) per barrel, a litre of super petrol in Nairobi should be going for about Sh72, instead of Sh89.46 set by the ERC, last Saturday. Last week, crude plunged to as low as $42.85 a barrel, the lowest price since March 2009.

Mr Kamau (pictured) said the latest raise is not justified since Kenyans were yet to benefit from sharp fall in January when global crude oil touched a low of $40 per barrel. ERC’s Director General Joseph Ng’ang’a, cited the rebound in global prices of crude oil in February as the reason for the increase of the local pump prices.

Phase out

Consumer lobby Consumer Federation of Kenya (Cofek) has also written to Parliament to stop the ERC from abusing its fuel price control powers.

“... urgently commence investigations and thereafter report to the House so as to establish and recommend drastic measures against the continued blatant injustice visited upon consumers on the high fuel price fixing by the ERC, against global market prices,” reads in part a petition by Cofek.

ERC started regulating oil prices in Kenya in December 2010 following public outcry about cartel-like tendencies in the market, which exposed consumers to exploitation through high prices.

However, in a clear about-turn, consumers now say ERC could be deliberately delaying to pass the full benefits of the recent drop of crude prices.

Cofek Secretary-General Stephen Mutoro wants Parliament to recall ERC powers to set fuel prices, among other interventions. He claims that the ERC as presently constituted, is skewed in favour of private sector when one of its core objects under Energy Act (Cap 314) Sec. 5 (b) requires it to “protect the interests of consumer, investor and other stakeholder interests”.

Circumvents

ERC cannot offer a basis for price-controls instead of proper market environment regulation. This is anti-consumer on two strengths – it strangles competition and goes against the doctrines of a liberalised market and economy,” Cofek says in the letter addressed to the National Assembly through Mr Justin Bundi, Clerk to the National Assembly.

To stop the price controls, the Ministry of Energy will have to phase out the open tender system (OTS) that awards one oil marketer the right to import petroleum in bulk every month on behalf of the entire industry.

Cofek says the open tender system (OTS) fuel procurement system is not as open as it is made to appear as it circumvents the Public Procurement & Disposal Act, 2005.

In its previous press briefings, the ERC justified its sluggish response to cut local retail prices saying that it takes Kenya 30 to 45 days to reflect global oil price changes in domestic prices. Also it said a sharp jump in the international pricing of petroleum products that happened on February 1, without a corresponding downward adjustment, is to blame for recent hefty hike. “There was a sharp rise at the beginning of the period that informed the pricing,” Linus Gitonga, Director of Petroleum at the ERC said.

“It was taking them almost two months or at least their 45 days upper limit to do the downward adjustments but it has now taken them less than a month to reflect the slight rise in prices in February,” Mohamed Wehliye, Senior Vice President, Financial Risk Management, Riyadh Bank, Saudi Arabia, questions.

“In fact prices have again fallen to a six year low already in this month but I doubt whether ERC will be quick to pass through that in its April review.”