Drop in fuel prices ‘could be here to stay’

Caroline Theuri

Kenyans are buying fuel at lower prices this October compared to a similar period last year.

According to a Consumer Price Indices and Inflation Rates for October 2015 report by the Kenya National Bureau of Statistics (KNBS) released this month, Kenyans are buying a litre of kerosene at an average retail price of Sh57 in October, down from Sh81.1 over the same period last year. This represents a 30.3 per cent decrease.

In addition, motorists are buying a litre of diesel at an average price of Sh83, down from Sh101.59 during the same period last year, representing a 17.9 per cent decrease.

This decrease in fuel prices is welcome to Kenyans who usually have to dig deeper into their pockets to pay for fuel expenses.

Fuel has a ripple effect in other economic sectors. For instance, kerosene is used in the energy and water sector for electricity generation and cooking in households. Diesel is, conversely, used in the agricultural and transport sectors.

The KNBS report also said that the high cost of cooking fuels such as kerosene partly contributed to the rise of housing, water, electricity, gas and other fuels’ index, which increased by 0.69 percent.

“Despite a three per cent increase in the cost of diesel, the transport index decreased by 0.36 percent in October, compared to the previous month,” reads the report.

Fuel prices in the country are determined by the Energy Regulatory Commission, which has the mandate of protecting the interests of all stakeholders in the industry including consumers of fuel through fair pricing.

There is a correlation between fuel prices and inflation. For instance, in the second quarter of 2015 when there were low fuel prices, inflation was 6.99 per cent, down from 7.03 percent during the same period in 2014.

The increased uptake of electricity in the same period was due to an increase in electricity connections and lower power costs, owing to reduced fuel prices.

Source: Energy Regulatory Commission: October 15-November 14, 2015

According to another report by the KNBS, while in September 2015, the total fuel import bill stood at $263 million (Sh26,898,000,000), three years ago it stood at $32 billion (Sh 3.2 trillion). This low demand of imports has partly to do with the 2012 discovery of oil resources in the northern part of Turkana by international oil company Tullow Oil.

Kenya’s long-term blueprint policy document, Vision 2030 recognizes the importance of local crude oil as necessary to reduce our import bill, as well as boosting economic growth and development.

Turn around country’s fortunes

In a country whose main economic activity is agriculture, the discovery of crude oil reserves cannot be underestimated as they could have future commercial success as petroleum products.

According to a 2014 report titled “Kenya: An African oil upstart in transition”, oil exploration in Kenya dates back to 1954, during which time it has been carried out by multinationals such as Shell and BP, albeit with little success.

Though between the 1980s and 1990s oil exploration in the country resulted in the drilling of 15 oil wells by other multinationals such as Total, not much was achieved.

The oil sector has also witnessed a growth of oil marketers, from exports and importers. It is also characterized by environmental risks, issues which the Petroleum Bill 2015 seeks to address.

It was only in 2012 that oil reserves of a commercial potential was discovered by UK-based company Tullow Oil in Turkana.

It is now estimated that there are 600 million barrels of oil resources. There are other American and European multinationals vying  for a piece of the Kenyan oil resource pie, which have entered into exploration contracts with the Kenyan government.

This year, Tullow Oil in its half year report, said that it hopes to start producing oil in Kenya by the year 2020. It is such hope that the Kenyan government is banking on to reduce its total fuel import bill in the future.

The writer is a 2015 fellow of the Bloomberg Media Initiative Executive Training (BMIA ET) programme and graduate student at the University of Nairobi.