Petroleum sector posts largest price drop in years
Denis Gitau  |  May 14, 2020

As global crude prices continue to dip, motorists are set to enjoy cheaper pump prices with diesel and super petrol prices expected to drop by nearly Sh20 per liter and Sh10.59 per liter respectively 

The current market conditions have led to the introduction of new VAT rules. That is, up to Sh3.30 per liter will be added to the prices of fuel where previously duties and levies adding up to Sh41.19 per liter did not attract the 8 percent VAT.

The Energy and Petroleum Regulatory Authority (EPRA) sets a maximum retail price for petrol, kerosene, and diesel on the 15th of each month.

These controls were devised to curb surges in retail prices like the ones seen in late 2010.

The lowering prices in fuel can be traced to the fall out between Russia and Saudi Arabia to stop production because of the Covid-19 pandemic, which has also led to a rapid decline in demand for energy as several sectors go on what is essentially hibernation.

Costs associated with energy and transport carry significant weight among goods and services that are considered in the measurement of inflation.

The lower costs of petroleum should be taken into consideration by producers of services such as electricity and manufactured goods. This could lead to lower pricing across the economy with the impact reaching even the cost of living measures.

For instance, a majority of the Kenyan population relies on kerosene and gas for everyday tasks such as cooking and lighting, which are part of why the crude price is a key measure of inflation.

The Petroleum ministry rejected a petition for the exclusion of cheaper fuel in the monthly fuel review for May on Tuesday. The move was pushing regulators to base their review of fuel retail prices on the March crude cost that stood at $35.58 a barrel saying. This, according to them, was due to their inability to sell 40 percent of the costly fuel due to the Covid-19 restrictions.

The oil marketers said the restrictions led to a dip in demand for petrol and diesel. As such, fuel dealers were pushing for a delay on the retail price cuts to allow them to exhaust the fuel they had purchased for March, arguing that they stand to face huge losses amounting to billions if the price cuts are imposed in May.