Kenyans are unlikely to fully benefit from the recent decline in global fuel prices during the June 15 fuel price review, as the Energy and Petroleum Regulatory Authority (EPRA) has revised the formula used to calculate imported petroleum costs.
Under the new system, imported petroleum cargo shipped between May 10 and May 31 will be priced using the average global fuel prices of petrol, diesel and kerosene recorded in April.
Shipments arriving between June 1 and June 9 will be based on May average prices.
The change means that the impact of falling global fuel prices may be delayed or only partially reflected in the upcoming retail fuel prices.
EPRA New Fuel Pricing Formula: How it Works and Why It Differs From the Old System
Previously, cargo arriving between May 1 and May 14 was priced using April averages, while shipments arriving between May 15 and May 31 were priced using May averages.
EPRA said the changes are critical and will align the local pricing of fuel with the prevailing global trends, ensuring that consumers are not denied the benefits of a drop in global fuel prices in the long run.
“Government wanted to achieve consistency and greater transparency in pricing. Two instances, one in 2023 and the other in the recent past where pricing may have been switched between the two halves to the detriment of the consumer forced the government to act,” EPRA acting Director Joseph Oketch, said.
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Documents seen by Business Daily showed that 176 oil marketers attended the meeting where the Ministry of Energy and Petroleum announced the changes.
According to the document from the Ministry of Energy and Petroleum, the parties have agreed to amend Clauses 10.1.1.1 and 10.1.1.2 of the Agreement, regarding the pricing mechanism for delivered cargoes.
“For cargoes whose first day of delivery date range is between 1st to the last day of the month, the applicable month of pricing shall be the immediate month prior to the month of delivery. i.e., the average of the published quotation during the month (M-1),” the document read further.
The formula assessment indicates that consumers will not fully benefit from the decline in refined fuel prices recorded in May, particularly during the second half of the month.
As a result, the government may be required to increase fuel subsidies if it is to deliver on President William Ruto’s pledge to reduce diesel prices by Ksh 10 per litre in the June–July pricing cycle.
Two cargoes of diesel and one cargo of jet fuel were imported between May 16 and May 30, with industry simulations showing that importers could pocket Ksh6.079 billion on diesel and Ksh3.702 billion on dual-purpose kerosene.
According to Platts, a global provider of energy and commodities data and benchmark pricing, diesel prices fell to $1,132.04 (Ksh 146,576.53) per tonne in May from $1,409.28 (Ksh 182,473.57) per tonne in April ahead of the June review.
Over the same period, jet fuel prices dropped by 23.4% to $1,167.92 (Ksh 151,222.28) per tonne from $1,526.69 (Ksh 197,675.82).
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How Fuel Prices are Calculated
Fuel prices in Kenya are determined through a formula introduced under the Petroleum Pricing Regulations, 2022 which is applied by EPRA every 14th of the month, with new prices taking effect from the 15th.
According to EPRA, the pricing model takes into account:
- International crude oil prices, which influence the cost of refined petroleum products.
- Exchange rate fluctuations, particularly the USD/KES rate, affect import costs.
- Local taxes and levies, such as excise duty, the petroleum development levy, and the road maintenance levy.
- Freight and insurance charges for cargo brought through the Port of Mombasa.
- Storage and distribution costs from depots to retail stations.
- Margins for oil marketers and dealers, which are regulated to ensure fair pricing.
