In this interactive series, we invite our readers to send in questions to select public figures.
Answers will be published in the next print and online editions. This week, Energy Regulatory Commission (ERC) Director General Robert Pavel Oimeke responds to your questions:
1. My car recently developed mechanical problems after fuelling. I suspect that the petrol station may have filled my car with adulterated fuel. What should I do?
Kevin Okech Shanyulah, Embakasi West Nairobi County
Whenever you encounter such a problem, kindly call ERC on 0722200947 or 0708444000 or e-mail [email protected] .
The ERC will send inspectors to test for adulteration for both the petroleum fuel at the station and in your car’s tank.
2. Dear sir, what justification can you give Kenyans on why they buy fuel at higher prices compared to our neighbours Uganda and Tanzania — noting that Uganda transports its fuel through Kenya, which has additional costs?
Georgiadis Gitonga, Nairobi
It is worth noting that the international prices of petroleum products used in Tanzania lag behind the ones used in Kenya by a month.
Accordingly, in periods of rising prices like January-February 2018, Kenya will always post higher prices than Tanzania.
The pricing methodology is determined primarily by the demand whereby unlike in Kenya where petroleum products are consumed within 15-30 days of landing in Mombasa, the Tanzanian imports take 45-60 days.
Uganda has in the recent past increased petroleum products uptake from Tanzania and this is the main reason why prices for diesel in Uganda in February 2018 were lower than the ones in Kenya.
3. Of what benefit has ERC been to the public as far as price regulation is concerned since fuel prices have not been commensurate with the global prices?
Since the inception of petroleum price regulation in Kenya on December 2010, the local pump prices have been in tandem with prices in the international markets.
Prior to petroleum price regulation, local pump prices used to shoot up immediately there was an increase in international prices but dropped rather slowly when the converse happened.
This is known as the rockets and feather theory where local pump prices shoot up in case of increased international prices but drop like feathers when international prices decreased.
4. What is the status of liquefied petroleum gas (LPG) price regulation? Why are LPG prices higher even when fuel prices drop?
The main reason why LPG price regulation is not done is because the country does not have a common user import terminal for LPG like the one used for importation of super petrol, diesel and kerosene.
This makes it difficult to have standard handling charges since the only available LPG import facilities are with the private sector.
However, the government through Kenya Pipeline Company Limited is at advanced stages of putting up a common user LPG terminal in Mombasa after which an Open Tender System for LPG will be implemented.
Once this is done, the market will be ready for LPG price regulation.
5. Is ERC planning to comply with the International Monetary Fund’s directive to remove the fuel subsidy, which will mean an increase in the already high fuel prices?
The introduction of Value Added Tax is a policy matter being handled at the National Treasury level.
Nevertheless, Kenya has no fuel subsidy in its tariff structure whether in petroleum or in electricity.
The only costs that are met by the State are those relating to high voltage electricity transmission network development but even for those, the loan components are paid by consumers through end user tariffs.
There are no serious costs that would be borne by consumers even if the tariff was 100 per cent cost reflective.
It is important to point out that an efficient pricing system should not have subsidies, as they tend to be distortionary in nature.
6. The Jubilee manifesto is to increase cheap power generation from 850 to more than 3,000 MW. What generation capacity has the government achieved?
The total installed generation capacity as at December 31, 2017 was 2336MW.
The combined generation capacity (installed) of geothermal, hydro, wind, solar, coal, biomass and biogas as at December 31, 2017 was 1533.7 M.
7. One of your mandates is to protect the interests of consumers. In that respect, what can I do to ensure that I receive power bills from Kenya Power periodically without delay, based on actual metre readings and not estimates?
Use of prepaid metering allows you to only pay for the units you want to buy and use just as in the mobile phone.
This applies to only those registered as self-readers. Kenya Power can install smart meters, which can communicate with KPLC billing system without them having to come read the meters.
8. What measures is ERC putting in place to crack the whip on petrol stations selling adulterated fuel?
Andrew Maranga Ratemo, Malindi
The ERC runs a programme of petroleum fuels marking and monitoring, which ensures that all kerosene meant for domestic consumption has an invisible chemical marker.
The marker does not affect the quality of the products but rather ensures that whenever a business person uses kerosene to adulterate motor fuels or dumps petroleum products meant for export, the marker can be detected and the operator is punished.
The ERC has a monitoring team that traverses the entire country every day checking for the presence of the marker stated above.
Once found, the particular petrol station is closed by sealing and the licence is suspended until such a time that the operator has paid fines and penalties and remediated the adulterated products.
In addition, ERC publishes the names of the offending stations every quarter in two newspapers of wide circulation.
9. Majority of the energy and petroleum firms ERC regulates are big, near monopolies that declare super-normal profits. How does ERC manage to regulate such players given the financial and political clout they also have?
All players in the petroleum sector are licensed in accordance with Section 80 of the Energy Act No. 12 of 2006.
The licence comes with conditions which the player has to abide by, failing which ERC can invoke the provisions of Section 85 of the Act and suspend or revoke the license.
For instance, in 2012 ERC revoked the operating license of one of the big players for breach of licensing conditions until such a time that the breach was rectified.
This is supported by the financial statements of two major players in the industry, that is, Total Kenya Limited and Kenol Kobil Limited who are listed at the Nairobi Securities Exchange and also supported by the financial statements of National Oil Corporation of Kenya, which is a parastatal.
10. My question is about unscrupulous business people who are costing this country a lot of losses by selling adulterated fuel. What is ERC doing about such criminal practices?
Indeed, the loss suffered by the economy due to adulteration runs into millions of shillings.
The current market compliance on adulteration is 97 per cent, which is a great improvement from 80 per cent when the marking programme started.
In order to completely deal with the menace of adulteration, ERC has advised the policymaker to increase the tax on kerosene to the same level as that of motor fuels.
This will completely remove the incentive for adulteration, which at the moment is very high due to the Sh21 difference between kerosene tax and that of motor fuels.
11. Fuel prices have been on upward trend for some time. What is ERC doing to cushion fuel consumers from further unsustainable price increase?
The ERC is working on a price stabilisation mechanism that will ensure that the country saves money into a fund during periods of low prices and the same fund is used to cushion consumers during periods of high prices.
12. It is no secret that the dumping of fuel destined for export is rampant along the Northern Corridor. In places like Eldoret, many cases have been reported of the filling stations selling adulterated fuel. How do you plan to deal with this in a sustainable manner?
The ERC has advised the policymaker to remove the differential of Sh21 between kerosene tax and that of motor fuels.
This is the biggest incentive for motor fuel adulteration and once the tax increase is effected, adulteration will significantly reduce.
13. One of the reasons why the government resorted to regulation in the energy sector was the unfair pricing occasioned by the work of the cartels. How have you been able to rid them off the Kenyan market?
Pricing of super petrol, diesel and kerosene is based on the landed cost, storage and distribution costs, supplier margins and taxes and levies.
The landed cost is derived from the price in the international market, the freight charges for transportation by sea and the port handling charges in Mombasa.
The price of petroleum products in the international markets is based on data released by S&P Global Platts, an American company that collates the prices of products such as petroleum, precious metals and grain in the world.
The price issued by S&P Global Platts is verifiable and is used globally by traders for various commodities.
As such, no player in the market can manipulate the price declared as international market price for petroleum products since ERC and other players will quickly note.
TENDERS
During tendering process, only the component of freight and premium is evaluated and the lowest quoted number wins the tender.
The Free on Board cost is never tendered for since it is based on the S&P Global Platts price known globally.
Storage and distribution costs plus supplier margins are determined by ERC through a rigorous process that is open to public scrutiny. Taxes and levies are fixed by the policymaker.
14. What explains why power in Kenya is generally more expensive per unit compared to Egypt, for instance?
In Kenya, our power tariffs are largely cost reflective while the technology mix still contains technologies with a fairly high petrol-thermal component, which has a higher variable cost per unit of production.
Our installed capacity is only 2,333 MW while our per capita power consumption is around 147kwh.
In Egypt on the other hand, the energy mix comprises a large oil and gas component, (91 per cent), 7.5 per cent from hydro and 1.5 per cent from wind and other resources.
The oil and gas is state controlled and the price to power plants is made very cheap meaning that the government.
