ERC ‘error’ to cost you more in price of fuel

Oil tankers parked on Naivasha Road, Industrial Area in Nairobi on Tuesday. [David Njaaga, Standard]

You could pay even more for fuel in a revised price formula that seeks to protect oil marketing companies.

This is because the Ministry of Petroleum has said the formula used to calculate the new charges that saw the retail prices rise to Sh128.7 in Nairobi and Sh140 in Mandera from Saturday was erroneous as the prices it came up with were lower than they should be.

Apparently, in arriving at the pump prices, the Energy Regulatory Commission (ERC) subjected the oil companies’ margins to VAT.

The oil marketers have been lobbying the Petroleum Ministry and Treasury to reconsider including the margins. As it stands, the new charges have eaten into the margins of the marketers, which they want to be restored.

According to industry insiders, the lower margins are one of the key reasons the oil marketers are not picking up new supplies. In the formula, the wholesalers earn Sh7 per litre of the three petroleum products whose pricing is regulated while the retailers make Sh3.89.

 “It is clear that the VAT value as computed based on your value is lower than would be if computed on the basis of the transaction value. This would subsequently reduce the allowable dealer and wholesale margin and expose the oil marketing companies,” said Andrew Kamau, the principal secretary for Petroleum, in a letter to Treasury yesterday.

It emerged that petrol stations across the country were operating on less than half of their normal stocks even as the new tax continued to generate condemnation.

Data from the Kenya Pipeline Company (KPC) showed the daily uptake of fuel from its depots in Nairobi, Mombasa, Nakuru, Kisumu and Eldoret on Monday and yesterday was below half of what is picked up on normal days, resulting in short supply across the country.

The crisis that began to build up on the second day of the protests over the coming into effect of the 16 per cent value added tax on fuel had set the country into panic as Kenyans await the intervention of President Uhuru Kenyatta, who is expected back in the country today from China.

The amended Finance Bill approved by the National Assembly postponing the implementation of the new tax is expected to land on the President’s desk anytime now.

 

Assenting to it would offer a major relief to Kenyans, who are already feeling the pinch of the cascade effect of higher fuel pump prices, including hikes in bus fares as well as the cost of some basic commodities.

Resolution of the current stand-off could drag on should President Uhuru opt to send the Bill back to the House because MPs must raise a two-thirds majority to override his objections.

Adequate supplies

While KPC said it had adequate supplies, oil marketers expressed fear of major losses amid growing expectations that the Government might back down on the punitive tax, a move the oil companies said would leave them with stocks that could expose them to losses of billions of shillings under a lower price regime.

According to KPC data, oil marketers who pick up products from depots in Nairobi, Nakuru, Eldoret and Kisumu on Monday collected 11 million litres of fuel compared with the daily average of a combined 19 million litres. This is a 43 per cent decline.

This has left a substantial number of petrol stations with depleted stocks, with some outlets in Nairobi and its environs starting to experience a shortage of super petrol and diesel. The problem could persist, with the dealers saying they would not resume picking up fuel until the Government reverses the imposition of VAT on petroleum products.

At Shell Valley Road, the attendants said stocks would not last longer than mid-day today.

“The stock we have might only last till early morning tomorrow,” said Peter Mbithi, a pump attendant at the station. It was a similar situation at the Kobil filling station on Nairobi’s Haile Selassie Avenue.

The boycott started on Monday after the coming into effect of clauses in the Value Added Tax Act of 2013 that imposes VAT on petroleum products. The clause has been suspended twice, including a two-year suspension of 2016 ending August 31 this year, which resulted in the Act taking effect on September 1.

An attempt by MPs to suspend the clauses in the VAT Act for another two years remains in limbo as it has yet to get presidential assent or direction. The coming into effect of the VAT Act 2013 introducing the levy on fuel has seen a litre of petrol go up to Sh128.7 a litre in Nairobi and well over Sh140 in Mandera. Joseph Karanja, the chairman of the Kenya Independent Petroleum Dealers Association (KIPEDA), said the strike would persist until the Government reversed the additional tax charges.

The lobby said the new tax had seen the cost of acquiring petroleum products for their outlets go up substantially. KIPEDA is a lobby for small oil marketers estimated to command at least half of the market share.

Mr Karanja added that the marketers were wary of making more investments in petroleum stocks, with the Government already considering rescinding the decision to impose VAT on fuel. A reversal could leave the marketers with fuel stocks priced at a higher rate.

“Nothing has changed (from Monday)… dealers are not picking up products from the depots,” he said. “If you are stocking 10,000 litres, which is the minimum that you can buy, you will have to invest an additional Sh160,000. Many of marketers have much bigger capacities at their outlets, which means filling their tanks at their petrol stations would require them to raise hundreds of thousands and even millions of shillings to invest in new stock.”

Security installations

He added that a meeting had resolved to allow deliveries to security installations and hospitals.

In Nairobi, the fuel loaded at KPC’s Industrial Area depot dipped to 5.6 million litres on Monday, compared to seven million litres that oil marketers take everyday.

The KPC Kisumu depot registered a 50 per cent fall from the daily averages. The oil companies took 2.6 million litres from the depot on Monday compared with a daily average of 4.5 million litres.

[Reporting by Macharia Kamau, Dalton Nyabundi and Farrel Ogolla]