Mathare MP Anthony Oluoch, who is allied to Azimio la Umoja coalition, on Monday, July 3, raised questions over formula used by Energy and Petroleum Regulatory Authority (EPRA) to calculate new fuel prices.
The lawmaker argued that the prices are determined based on the assumption that the petroleum products in transit on the high seas will be distributed countrywide, thereby informing the changes in monthly prices.
Oluoch noted that setting new fuel prices based on the landing cost is a major error. The MP argued that the fuel often distributed immediately after the announcement already exists within the country, making the dependence on landing cost formula a flawed determinant.
"EPRA needs to explain how this calculation is done. They normally give the new tariffs on the fourteenth day of the month, and in this case, can the fuel which we are consuming now be subject to 16 per cent VAT yet the same fuel was subject to the old levies that were given to us in the last month's rates?" Oluoch posed.
The MP wondered why the prices shot up significantly yet the suspended Finance Act, 2023 also cushioned motorists from very high fuel prices by lowering four levies.
"We were told that some four levies went down in the calculation of the fuel prices. So EPRA needs to come to the table to explain to us how this calculation is done," the Mathare MP stated.
He further demanded an elaborate explanation of how each levy contributed to the overall price expressing concerns over the opaque manner in which EPRA conducts its calculations.
"When they calculate the new prices, they normally charge the landing cost and the cost of the dollar among other dynamics which we have been told affect the cost of fuel.
"Can we be told that a fuel that is already at a petrol station's pump be subject to the landing cost and subject to 16 per cent VAT? I think this doesn't seem right because this is the fuel that is already at the high seas or fuel that is supposed to be ordered," Oluoch wondered.
The Mathare MP claimed that lack of clarity in the formula used by EPRA to arrive at the new rates will significantly dent the confidence of Kenyan taxpayers in the regulator.
"The issue about transparency is very key when we are told that fuel has been increased by 8 to 16 per cent, in which the Railway Development Levy has gone down and the Import Declaration Fee has also gone down by 3 per cent.
"However, the transparency that Kenyans need here is to be told how this works out. We need to be told how the increase in Value-Added Tax (VAT) will bring the cost of fuel from where it was to where it is now," Oluoch stated.
How EPRA Calculates New Fuel Prices
According to a breakdown shared on its website, EPRA calculates new fuel prices using a formula that takes into account several factors such as the average price of Brent crude oil in the preceding 14 days and the exchange rate between the Kenyan shilling and the US dollar.
EPRA also considers the cost of transporting fuel to Kenya as well as the retailer and wholesaler margins in order to arrive at the new fuel price.
The formula is as follows:
Pr = mr + z + (Avg. Brent Price x Exchange Rate)
where:
Pr = the maximum retail pump price of the regulated product
mr = the allowed maximum retail gross margin
z = the delivery rate from the nearest wholesale depot to a retail dispensing site
Avg. Brent Price = the average price of Brent crude oil in the preceding 14 days
Exchange Rate = the exchange rate between the Kenyan shilling and the US dollar
The formula used by EPRA to calculate new fuel prices has been criticised by some observers who argue that it does not take into account all of the factors that affect the cost of fuel.
For example, the formula does not take into account the cost of refining oil, which can vary depending on the quality of the crude oil.
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