This archive report was first published on 14 May 2020.
On May 14, 2020, the Kenyan government rejected a request by oil marketers to base retail fuel prices on the March crude cost of $35.58 a barrel, instead opting for the April average of $26.63.
The decision was made by the Ministry of Energy, which operates the open tender system (OTS) for fuel sourcing. The OTS has been working well until the latest request by the marketers, who were pushing for the regulator to base its review of retail fuel prices on the March crude cost.
However, the Ministry of Energy correctly rejected the request, citing that oil marketers must bear the reduced earnings or losses resulting from the price change. This decision is in line with the liberal economic thinking that price control comes with risks and market distortions.
Kenya has experimented with price control in the past, including the controlling of bank lending and deposit rates, which was later dropped due to reticence by banks to lend to individuals and businesses considered risky.
The oil retail sector is critical to the economy, especially in fueling the transport and industrial sectors. The Energy and Petroleum Regulatory Authority (EPRA) and its predecessor ERC have been in charge of the central sourcing of fuel mainly from the Gulf and subsequently retail pricing.
Now that the new prices have been announced, oil marketers must bear the reduced earnings or losses, while consumers should not be reduced to hapless bystanders to protect the bottom lines of companies.
