Thursday, March 17, 2011

Walking Nation

Everyone’s lips are fixated to the rising cost of living that we are experiencing in this country. A lot of this has to do with rising cost of petroleum products which have hit 3 digits from Kshs ninety something to over a hundred Kenya Shillings. To add insult to injury the country may be experiencing another drought. From where I sit the government has been requesting a report on the impact of drought on food prices.

However, what you don’t fail to notice while coming to work or going home is the sheer number of persons who are walking to and from work. So one has to ask has this country become Cuba or is it under an embago of sorts?

I was fortunate enough to attend a public forum organised by the Institute of Economic Affairs (IEA-Kenya) which centered on effects of petroleum pricing regulations in Kenya.
Members/ speakers presents were cross cutting along the value chain of petroleum products from middle boys of the industry i.e. Petroleum Institute of East Africa (PIEA), regulators i.e. Energy Regulatory Commission (ERC), independent petroleum suppliers and consumers/consumer organization i.e. the Consumer Federation of Kenya (COFEK).

MIA were the big industrial players (BP, NOC, etc) nevertheless, one was able to get a picture on how the industry operates. Perhaps of interest to every one present was how the ERC was going about its business of setting up prices of petroleum products.
One of the things to note is that ERC mandate to control prices came into force in December 15, 2010. However, since its mandate came into operation people presents were of the view that they have not experienced an adjustment of prices downwards. The ERC was of the opinion it is too early to start judging its performance.

During the Q&A session we wanted to know how pump prices were arrived at and from the pump prices in early December of Kshs 91. Here is the breakdown;

Landing Price Mombasa



Margins (Marketers)





From the above you will notice the government gets a huge chunk in taxation. So the question is if the treasury would reduce the amount of taxation?
Well, the treasury according to ERC officials present pointed out that it would want to know where it can recover that amount from!

From my own perspective I tend to think that should this continue (Read: Drought, floods and food. An opinion piece from Paul Krugman) then come 2012 a lot of legislators are going home or anything in between is anyone’s guess!
Energy Regulation Commission Presentation: Examining the Rationale & Effects of Petroleum Pricing Regulation in Kenya (Part 1 and Part 2)