The energy sector regulator is set to review the fuel pricing formula in changes that will insert a component for local oil in case the country starts commercial oil production in Turkana.
The Energy and Petroleum Regulatory Authority (Epra) is preparing to undertake a cost of service study for the supply of petroleum products to reveal the actual costs incurred in fuel supply right from procurement, handling, storage and final delivery of the products to the end consumer.
“The study will assist in re-assessing key variables that should be included in the formula to capture prudently incurred costs of petroleum products,” says Epra in tender documents.
Kenya recently made changes to its fuel pricing formula, after the Ministry of Petroleum in October last year gazetted the Petroleum (Pricing) Regulations, 2022 that among other provisions, allowed for the setting of both maximum wholesale and retail prices.
Epra, however, says recent supply chain constraints occasioned by both the Covid-19 menace and the current Russia-Ukraine conflict point to the need to re-examine the pricing parameters in the Kenyan petroleum value chain.
The regulator wants the new formula to be flexible to allow the government to adjust the components to cater for a possible outcome where Kenya starts exploiting its oil reserves. It is estimated that Kenya has an estimated 2.85 billion barrels of crude oil deposits but the larger share of the deposits is inaccessible for commercial exploitation.
The South Lokichar Basin in Turkana is estimated to hold about 560 million barrels which are commercially viable. British firm Tullow Oil holds a 100 percent stake in blocks 10BA, 10BB and 13T in the area.
The company is still looking for an investment partner to proceed with the project which requires an estimated investment of about Sh400 billion.
Kenya recently said it would decide the fate of the project by September with the decision set to play a key role in Tullow’s ability to attract strategic investors to undertake the project.
“The scope of the consultancy is to review the current pricing formula in Kenya and the underlying worksheets and recommend, desirable improvements ensuring that the pricing formula proposed is robust enough to accommodate local products upon commencement of production in the country’s oil reserves,” said Epra.
