MPs seek to clip Petroleum CS powers

MPs want Petroleum Cabinet Secretary denied a free hand in the usage of the billions of shillings collected under the Petroleum Development Levy (PDL) and review of a formula for calculating petroleum products prices.

The MPs through the Petroleum products’ (Taxes and Levies) (Amendment) Bill, 2021 want the Petroleum Development Levy Act, 1991, which gives the Cabinet Secretary discretionary powers to vary orders relating to PDL,  amended so that Parliament can ratify the usage of the fund.

“The committee (Finance) further observed that Section 3 of the Petroleum Development Levy Act, 1991 gives the Cabinet Secretary discretionary powers to vary orders relating to PDL. Given the financial impact this variation may have, there is need to remove these discretionary powers from the Cabinet Secretary,” reads the committee report tabled in the house yesterday.

“The House should be given an opportunity to debate the levies either to approve or reject. This should not be left to the Committee on Delegated Legislation to approve without reverting back to the House after scrutiny,” further reads the report.

According to the report, the total revenue collected from the PDL amounted to Sh25.88 billion in the 2020/2021 financial year.

Out of the amount, the National Treasury disbursed Sh1.6 billion to the State Department for Petroleum for fuel stabilisation, Sh2.2 billion to the Ministry of Energy and Sh18.1 billion to the State Department for Infrastructure. The fund had a closing balance of Sh 3.4 billion at the end of the 2020/2021 financial year.

“The disbursements to the State Department for Infrastructure and Ministry of Energy were misapplied since they were not in line with the intended purpose of the Petroleum Development Fund as per Section 4 of the PDL  Fund Act of 1991 and the PDL Order, 2020,” reads the report.

In the amendments, the MPs want the fund managed by an advisory board similar to the Roads Maintenance Levy and  it be used for the stabilisation of fuel prices and for matters relating to the development of common facilities for distribution or testing oil products. The fund board shall also establish a formula for distribution of money from the fund to oil marketing companies.

The CS may by writing to the administrator request for a draw down from the Petroleum Development Fund to stabilise local petroleum pump prices where he deems it necessary.

MPs also want the Statutory Instruments Act, 2013 amended to require that all regulations affecting taxes, levies and fees be approved or rejected by the whole House and not the Committee on Delegated Legislation.

In this regard, the lawmakers have recommended the revocation of the Energy (Petroleum Pricing) Regulations, 2010.

The committee also observed that the Petroleum Development Levy Act, 1991, which put in place the PDL, does not clearly elaborate on the purpose of the fund, the formula for determination of the Levy and its utilisation, a move which MPs said is ambiguous and subject to abuse.

The MPs said the Petroleum Development Fund as contained in Section 4 of the Act is not specific as to the purpose of the fund and only targets development of common facilities for the distribution or testing of oil products and for matters relating to the development of oil industry.

Through the Bill, MPs want all the current price regulations reviewed and made Acts of Parliament so they are not prone to abuse by Epra during price reviews.

The committee observed that landing costs account for more than 46 per cent, taxes and levies account for about 40 per cent, gross margins account for about 10 per cent, storage and distribution costs account for about 3 per cent and demurrage costs account for less than one per cent of the price of fuel. “Urgently review relevant laws so as to cause a reduction of the retail prices of petroleum and petroleum products including the Value Added Tax Act, the Income Tax Act, the Tax Procedures Act, the Miscellaneous Fees and Levies Act among other statutes,” reads the report.

The committee observed that Kenya has a strategic petroleum reserve that can last the country for between seven to 10 days only.

This means a change in the international crude oil prices impacts immediately on the fuel prices in the country. This can be addressed by the draft Petroleum Consolidated Fund and Petroleum Strategic Stocks Regulations which provide for the funding and management of the strategic petroleum reserves in the country.