Business Daily Africa, November 29, 2010

By Daniel Asher

The over reliance on moral Suasion by the Ministry of Energy and ERC rather than overt regulatory measures to align downward prices to international oil prices is yet to return favourable petroleum products prices for consumers.

The MPC has not only been reluctant but is yet to implement part IV of the Restrictive Trade Practices and Price Control Act, which deals with pricing since 1995 following the decontrol of prices which suspended price fixation in all sectors including the retail prices in the petroleum industry rendered MPC and ERC powerless in setting petroleum retail prices even under obvious circumstances. It is upon the Minister for Energy to make ultimate decisions. This state of affairs has left consumers helpless on the cruel hands of cartel like industry players who have the capacities to lobby in their favour in so far as pricing and other related matters are concerned.

Inefficiency in the provision of petroleum products in Kenya has led to high transport and demurrage costs incurred by the oil companies. Realisation of sustainable low retail prices of oil fuels in Kenya now requires both private and public investment in the physical infrastructures for transportation, refining and storage of oil products. The country must now upgrade the oil receiving jetties at the KPA to avoid delays and cost overruns, upgrading the facilities for oil refinery – the refinery is known to use old technology and is therefore not able to refine residue of its processing products; This inefficiency cost is passed on to consumers. The government should invest in more storage capacity at the oil storage facility while upgrading the Kenya pipeline.

The implementation of competition-related regulations in Kenya’s petroleum sector requires close coordination of enforcement of infringements related to pricing, fair trade practices and consumer protection by various agencies. Thus, there should be effective consumer representation in the regulatory structures in the oil industry and clarity about the respective roles of the Ministries of Finance, Energy and Trade and other government Agencies and regulatory bodies on the coordination, harmonization and the exercise of jurisdiction over competition matters within the petroleum sector to ensure consistent application of the principles of competition and consumer protection.

Government must therefore refocus its investments on the infrastructure that will ensure an efficient supply chain of petroleum products which would in turn greatly reduce the transportation and demurrage costs incurred by the oil companies instead of relying on short term measures of oil products price fixation to curtail inflation while giving only short term protection to its consumers.

Mr Asher is the consumer programmes officer at CUTS ARC.

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