Despite maintaining pump prices for fuel in the latest review, Kenya is now facing the most expensive fuel in the East African region, a situation that raises significant concerns for consumers and the broader economy. The Energy and Petroleum Regulatory Authority (EPRA) has announced that from November 15, 2024, to December 14, 2024, fuel prices in Nairobi will remain relatively stable, with a litre of petrol retailing at Ksh.180.66, diesel at Ksh.168.66, and kerosene at Ksh.151.39. While these prices are unchanged from the previous period, they remain the highest in East Africa, significantly outpacing neighboring countries like Uganda, Rwanda, and Tanzania.
A spot-check by Citizen Digital revealed that the same litre of petrol costs Ksh.171 in Uganda, Ksh.153.34 in Rwanda, and Ksh.141.89 in Tanzania, making Kenya’s fuel the most expensive in the region by a wide margin. The reasons behind these disparities are multifaceted, involving both macroeconomic factors such as global oil prices, foreign exchange rates, and domestic policy choices.
Global Economic Factors and the Impact on Kenya’s Fuel Prices
Globally, the price of oil has been declining in recent months due to a drop in demand from China, the world’s largest oil importer, and the persistent high-interest rates set by the United States Federal Reserve. The Federal Reserve’s monetary policy plays a pivotal role in shaping global financial markets, and its stance on interest rates has a significant impact on demand for oil. While investors were initially hoping for interest rate cuts to stimulate economic growth in the US, the Federal Reserve has maintained high rates, leading to reduced demand for oil.
This drop in global oil prices has not yet translated into cheaper fuel for Kenyan consumers, which highlights a key issue facing the country’s energy sector. Despite a reduction in global oil prices, Kenya’s fuel prices have remained high, largely due to the unique challenges of the domestic market, such as foreign exchange rates and ongoing supply agreements.
The Government-to-Government Fuel Deal and Its Implications
One of the primary reasons for Kenya’s high fuel prices is the government-to-government fuel deal that has been in place for some time. This arrangement allows Gulf oil companies to supply Kenya with fuel, but it comes at a cost. The deal is designed to avoid penalties for the government, but this cost may eventually be passed on to consumers in the form of higher prices.
The agreement is expected to continue until the required volume of fuel is exhausted, and while this has helped stabilize the market in the short term, it also poses a challenge for long-term price stability. The lack of a competitive and transparent fuel procurement process has kept Kenya’s fuel prices high compared to its regional neighbors.
Comparing Kenya’s Fuel Prices to the Region
In contrast, countries like Uganda and Rwanda have managed to capitalize on the drop in global oil prices, resulting in lower fuel prices. Uganda, in particular, has seen a reduction in fuel prices, with the lowest prices in the past six months according to the Uganda National Oil Company (UNOC). The Ugandan government has also been proactive in seeking long-term solutions by pushing for the development of its own oil refinery, which would help insulate the country from global oil price fluctuations. This move is seen as crucial for ensuring energy security and price stability, especially in light of potential geopolitical risks, such as instability in the Middle East.
Tony Oyoa, the Chief of Corporate Affairs at UNOC, explained that the development of a domestic refinery would allow Uganda to better absorb shocks from global price fluctuations, such as those caused by instability in Iran or other oil-producing regions. This proactive approach contrasts sharply with Kenya’s reliance on external fuel supply agreements, which have left the country vulnerable to price volatility.
What Lies Ahead for Kenya’s Fuel Prices?
As Kenya continues to grapple with the highest fuel prices in the region, the government’s focus should be on finding ways to reduce the burden on consumers. The extension of the government-to-government arrangement with Gulf oil companies may help avoid short-term penalties, but it is not a sustainable solution in the long run.
In the coming months, Kenyans may face continued pressure at the pump, particularly if global oil prices remain unstable or if the government opts to extend the current fuel supply agreements. The government will need to explore more sustainable energy policies and investments, such as the development of domestic refining capacity, to ensure a more stable and affordable fuel market for its citizens.
Ultimately, while the government can do little to control global oil prices, it can work towards implementing more efficient and transparent fuel procurement practices, as well as investing in local energy infrastructure to reduce Kenya’s dependence on external suppliers. Only then can the country begin to tackle the high fuel prices that are increasingly becoming a heavy burden for consumers.
