Queries as oil firms seek higher prices

A car being fueled at a fuel pump.

Oil marketing companies want the Government to protect them by allowing them to sell fuel at high prices despite the crash in crude oil prices in March.

In a letter to the Government sent by the Supply Coordination Committee (SupplyCor), the oil marketers want the regulator, the Energy and Petroleum Regulatory Authority (EPRA), to compute the prices for May and June based on crude oil prices for February and March when prices were higher.

This is against the price-capping norm where the Authority uses the previous month’s prices when setting prices for the current month.

In the letter addressed to John Munyes, the Cabinet Secretary for Petroleum and Mining, the oil marketers said they were still holding petroleum stocks acquired before the cost of crude dropped substantially.

They have requested Mr Munyes to direct EPRA to give the industry time to offload the stocks in the market at high costs.

The SupplyCor is made of representatives from different oil marketers and ensures smooth supply of petroleum products in the country by working closely with government agencies. EPRA will publish new prices tomorrow. The supplyCor wants higher prices effected.

The Consumers Federation of Kenya (Cofek) termed the request as ‘shameful’ and added that “consumers would not accept high and unreasonable fuel prices at this point in time”.

“Oil Marketing Companies (OMCs) were unable to sell in February and March 2020 priced cargoes during April 2020 as a result of reduced sales and are therefore lagging behind the price review formula that seeks to compensate the OMCs based on the recently received cargoes,” reads the letter by SupplyCor, currently chaired by KenolKobil’s General Manager Martin Kimani.

“This disruption of sales has, therefore, led to accumulation of older priced cargoes in the system which pose a significant commercial exposure to OMCs in the next price review.”

The letter continued: “We therefore request your office to engage EPRA to come up with a mechanism to compensate OMCs on the current price exposure pegged on the drop in demand for both (super petrol and diesel).”

The marketers have gone further to propose that when determining prices for May and June, EPRA excludes the cargoes that were imported at lower costs in April. Instead, the oil companies want the regulator to use cargoes acquired when the cost of crude was high. This would mean applying prices of February and March. In February, price of crude oil was well above Sh5,000 per barrel.