On 28th September 2021, The National Assembly Departmental Committee on Finance and Planning conducted an inquiry into the cause of the drastic increase in the price of petroleum and petroleum products that has increased the cost of living for many Kenyans. KEPSA was invited to make its submissions before the committee.
While presenting KEPSA submissions, the KEPSA Legal Advisor, Ms. Joyner Okonjo noted that the increase in fuel prices has a direct negative impact on businesses as it increases the cost of transportation, cost of production in industries, cost of running agricultural machinery, production of power, among others. She added that passing down this cost to the consumer increases the price of basic commodities and renders locally produced commodities less competitive in the local market, regionally and internationally, thus hurting businesses and the economy. “Our business won’t be able to compete with cheap imports,” She concluded.
On his part, KEPSA Head of Policy Research & Analysis and Public-Private Dialogue, Mr. Victor Ogalo presented the risks that the differences in fuel prices within the East African Community (EAC) pose to Kenya’s economy. He observed data by the Energy and Petroleum Regulatory Authority (EPRA) in the month of July indicated that taxes and levies on super petrol totalled Sh58.01 per litre. In the case of Uganda, taxes and levies totalled Sh44.38 and in Tanzania they totalled Shh41.73 per litre of the product. Mr. Ogalo went on to say that the main risk of these high differences in pricing renders Kenyan goods less competitive thus losing market share in the EAC region.
For transit cargo, Mr. Ogalo noted that transporters prefer to fuel in the destination country thus denying the government the revenue or cargo owners may shun Kenyan transporters due to the increased costs, thus reducing jobs for Kenyan drivers and truck crew. He added that along the borders, there were issues of fuel smuggling, fuel adulteration and motorists moving across the borders to fuel.
During the session, Mr. Ogalo also presented the following proposals to address the current volatility in fuel prices;
- Review of the current pricing formula to remove some of the taxes including VAT on fuels and reduction of excise duties since fuel is a basic commodity
- Review of prices to be done fortnight instead of monthly
- Reintroduce stabilization fund to be included in the pricing formula
- Aim to be the most competitive in fuel prices in the EAC region
Mr. Ogalo noted that the easier way to stagnate the economy is to tinker with fuel prices because the effects hit everybody and all products. “The proposals we are making here are justifiable because during a windfall when international crude prices go very low, our expectation is for the government to build a buffer which it can use to cushion Kenyans against future rise in prices. This is not subsidy but is what a developmental government ought to think about.” He remarked.