WORLD BANK: Price controls by ERC denying Kenyans the benefit low crude prices
After an elaborate article by yours truly on the Standard about how oil prices in Kenya cannot go below Sh50 a barrel even if the global oil prices went to 0, due to the skewed formula ERC and high govt taxes, The World Bank has joined in to question ERC's fomula : here is the link:
http://www.standardmedia.co.ke/mobile/article/2000188606/defying-gravity-why-kenyans-would-not-get-fuel-at-sh50-even-if-oil-dips-to-0-a-barrel?pageNo=1
COURTESY OF BUSINESS DAILY:
In Summary
http://www.standardmedia.co.ke/mobile/article/2000188606/defying-gravity-why-kenyans-would-not-get-fuel-at-sh50-even-if-oil-dips-to-0-a-barrel?pageNo=1
COURTESY OF BUSINESS DAILY:
In Summary
- World Bank says the price controls by the Energy Regulatory Commission have denied consumers the full benefits of low crude prices.
The World Bank Group has joined a growing chorus of
voices questioning the efficiency of the government’s price-setting role
in the oil segment as marketers retain the biggest chunk of gains from
falling crude prices.
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The bank’s lead economist for Kenya Apurva Sanghi said the
price controls by the Energy Regulatory Commission (ERC) have denied
consumers the full benefits of low crude prices.
The ERC reduced the price of petrol – used to run
private cars – by Sh1.42, while diesel – which is used to power
industrial machinery, trucks and buses – fell by Sh1.81.
The marginal cuts have sparked disquiet among
consumers with a member of Parliament pledging to petition the Speaker
to discuss pump prices immediately Parliament resumes.
“In Kenya, like in other sub-Saharan African
countries, a large part of oil price decline has not been transmitted on
to consumers,” Mr Sanghi told the Business Daily.
“The evidence so far shows that that the
pass-through effect has been lower in sub-Saharan Africa compared to
other parts of the world, largely because of price regulations,” he
added.
Kenya bought its current petroleum stocks last
month as crude prices tumbled to an 11-year low of $37 a barrel, down
from $43 in November, a 14 per cent drop.
There is a one-month lag between the placing of
supply orders and the actual delivery of consignments at the Mombasa
port, meaning local prices do not immediately reflect global market
trends, but are at least one month behind.
The ERC has, however, said that the import cost of
refined petroleum varies from that of crude hence the disparity, a
position that Mr Sanghi has acknowledged.
Kenya buys refined petroleum products after its
sole refinery in Mombasa was closed in September 2013, denying the
country the full benefits of the lower crude oil prices.
Petrol retails at Sh88.64 a litre in Nairobi while diesel costs Sh76.70 a litre.
“Declining international oil prices should lower domestic prices and boost aggregate demand,” said Mr Sanghi.
The energy sector regulator started controlling
fuel prices in December 2010 to shield consumers from cartel-like
behaviour in the petroleum retail market.
But consumers have more recently complained that
the controls are being used to block them from enjoying the fruits of a
competitive market.
Petroleum prices have a bearing on inflation because they affect
operation and production costs of manufacturing, agriculture and
transport.
Producers often respond to the cost movements by adjusting retail prices of their products and services.
Producers often respond to the cost movements by adjusting retail prices of their products and services.
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Oil accounts for about a fifth of Kenya’s import bill,
highlighting its critical role in determining the country’s current
account – the difference between the value of exports and imports.
Global forecasts show crude prices will this year stay below the current 12-year low of $28 a barrel, driven by oversupply.
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