How EPRA Calculates New Fuel Prices In Kenya

EPRA's approach to determining fuel prices in Kenya is explained. Learn about the formula, regulations, and key considerations. Stay informed on the latest rates

Jul 3, 2023 - 09:35
 0
How EPRA Calculates New Fuel Prices In Kenya
How EPRA Calculates New Fuel Prices In Kenya

The Energy and Petroleum Regulatory Authority (EPRA) is critical in Kenya's energy sector. It was established by the Kenya Energy Act 2019, replacing its predecessor, the Energy Regulatory Commission. EPRA's mandate is broad, covering the regulation of electricity, petroleum, and coal sectors, including imports and exports. One of its crucial roles in determining new fuel prices in Kenya, a subject that often sparks curiosity and debates. This article explores how EPRA calculates new fuel prices, considering wholesale prices, Brent crude oil prices, and more.

EPRA's Pricing Mandate and Regulatory Framework

EPRA undertakes retail pricing of petroleum products such as Diesel, Super Petrol, and Kerosene, as stipulated in the Energy (Petroleum Pricing) Regulations, 2010. This regulation introduced a formula EPRA uses to determine the maximum retail pump prices of regulated products, considering many factors.

The Energy (Petroleum Pricing) Regulations, 2010, are enshrined in the broader Kenya Energy Act 2019, providing EPRA with clear, legal backing for its activities in the energy sector.

The Mathematical Approach

EPRA uses two different formulae to compute the maximum wholesale and retail pump prices of petroleum products, ensuring that consumers get a fair deal while enabling businesses to profit.

Wholesale Prices Calculation

The formula for determining wholesale prices is as follows:

Pw = Cu (1+ Lp + Ld)+ K (1+ Ld) +mw

Where:

  • PW: Maximum wholesale price for Super Petrol, Kerosene, or Automotive diesel
  • Cu: Weighted average Cost in shillings per liter
  • K: Transportation cost from Mombasa to the nearest wholesale depot
  • Lp: Allowed losses in the pipeline
  • Ld: Allowed losses in the depot
  • MW: Allowed oil marketing company's gross wholesale margin

This formula accounts for costs such as the original product cost, transportation costs, losses in the pipeline and depot, and the gross margin for the oil marketing company.

Retail Prices Calculation

The Pricing formula used for Super Petrol, Kerosene, and Automotive Diesel is as follows:

Pr = Pw + mr + z

Where:

  • Pr: Maximum retail pump price
  • mr: Allowed maximum retail gross margin
  • z: Delivery rate from the nearest wholesale depot to a retail dispensing site

This formula sets the maximum retail prices at pump stations, incorporating the wholesale price, the retailer's gross margin, and the delivery cost from the wholesale depot to the retail site.

Key Considerations in Price Calculation

When calculating the wholesale and retail prices for petroleum products, EPRA integrates the costs indicated in the Energy (Petroleum Pricing) Regulations, 2010. Key considerations include the average price of Brent crude oil over the preceding 14 days and the exchange rate between the Kenyan shilling and the US dollar. Other variables include the Cost of transporting fuel to Kenya and the margins for retailers and wholesalers.

Transparency and Accountability in Fuel Pricing

EPRA releases the revised retail and wholesale prices for Super Petrol, Automotive Diesel, and Kerosene monthly, typically on the 15th of every month. However, concerns over transparency have been raised, with stakeholders demanding a more in-depth breakdown of how each levy contributes to the overall price.

Mathare Member of Parliament, Anthony Oluoch, called for more clarity on the formula used by EPRA, suggesting that relying on landing cost as a determinant needs to be revised. The issue stems from the consideration that fuel distributed immediately after the new price announcement is already within the country, therefore, not subjected to new landing costs. Oluoch also pointed out that this lack of transparency could potentially erode Kenyan taxpayers' confidence in the regulator.

In response to such concerns, EPRA strives to make fuel pricing as transparent as possible. They provide the pricing formula, indicating the factors affecting fuel prices. However, more must be done to improve the public's understanding of these factors and how they contribute to the final retail prices.

READ ALSO: Full List of Bank Codes in Kenya 

Conclusion

Understanding how EPRA calculates new fuel prices in Kenya is a large feat. It's a complex process involving numerous factors and mathematical formulae. The wholesale and retail prices of Super Petrol, Diesel, and Kerosene are primarily determined by factors such as the Cost of crude oil, transportation costs, exchange rates, and gross margins for oil marketing companies.

While the formula provides a logical structure, it's not without its criticisms, with calls for more transparency and consideration of other dynamics like refining costs. Yet, one thing remains clear: the significance of EPRA's role in regulating Kenya's energy sector, ensuring a balance between fair consumer prices and industry sustainability.

FAQs

How often does EPRA update the fuel prices in Kenya?

EPRA typically updates the retail and wholesale prices for Super Petrol, Automotive Diesel, and Kerosene on the 15th of every month.

What is the role of the Energy (Petroleum Pricing) Regulations, 2010, in fuel pricing?

The Energy (Petroleum Pricing) Regulations, 2010 provides the legal framework EPRA uses to regulate the retail pricing of petroleum products in Kenya.

What factors does EPRA consider in calculating new fuel prices?

EPRA considers the Cost of crude oil, transportation costs, exchange rates, and gross margins for oil marketing companies, among others, when calculating new fuel prices.

Does EPRA consider the Cost of refining oil in its pricing formula?

Currently, EPRA's formula does not explicitly consider the Cost of refining oil, which varies depending on the crude oil's quality.

Why has there been criticism about EPRA's fuel pricing formula?

Some stakeholders argue that the formula needs to consider all the factors affecting fuel costs, such as refining costs. There are also concerns about the transparency of the pricing process.

How can one calculate the Cost of fuel for a road trip?

To calculate fuel cost, you can use the formula: Fuel cost = (Distance / Consumption) × Cost per gallon.

Disclaimer

This article is provided for informational purposes only and is not intended as legal or financial advice. For specific information related to your situation, please consult a professional.

Note: EPRA's pricing formula, regulations, and practices are subject to change. This article was based on information available as of the date of writing. For the most current information, visit EPRA's website.

What's Your Reaction?

like

dislike

love

funny

angry

sad

wow

Joseph Richard Joseph is a graduate of Mathematics and Computer Science (Applied Option). With expertise in Technology and Finance, he brings his knowledge to the field, demonstrating an authoritative understanding of these interrelated areas. Joseph is pursuing a Master's in Software Engineering, further expanding his skill set.