25 September 2007
editorial
Nairobi — It is likely that recent increases in international oil prices are steadily slowing down Kenya's recent economic gains.
Even as the Government dilly-dallies on making policy announcements to militate against the fuel price surge, Kenyans should start to brace themselves for a general increase in prices of goods and services.
The economy will be under pressure from increased import costs of oil and related products.
This will in turn push up prices of transport, causing a spiral effect on the cost of living.
The increased demand for foreign exchange is likely to put pressure on the shilling's strength against other major international hard currencies.
The effect of high oil prices is likely to lead to increased food prices, which have eroded purchasing power of consumers.
Central Bureau of Statistics reports indicate that overall 12-month inflation rose from 11.1 per cent in the year to June 2007 to 13.6 per cent in the year to July 2007.
The high world oil prices may accelerate inflation for the fuel and power and transport categories.
In the transport sector for instance, new motor vehicles registered, increased by 46.2 per cent in the first four months of 2007. A total of 23,417 new motor vehicle units were registered during the period compared with 16,014 units registered in a similar period in 2006. All these vehicles are pushing up demand for fuel.
The cost of electricity will increase sooner or later because of the fuel price surcharge imposed on the use of fuel oil to generate power. Who can blame manufacturers when they eventually increase prices.
A week ago, international oil prices hit a historical high of more than $84 per barrel. Oil analysts are blaming everything from China's growing appetite for oil to reduced oil supplies from members of the Organisation of Oil Producing and Exporting Countries. There are also fears over hurricanes in the Gulf of Mexico and in the Pacific Ocean, which are forcing US oil refineries to either shut down or to reduce production
Whatever the cause, almost immediately, and despite the fact that local oil stocks take weeks between ordering and delivery at Mombasa Oil Refinery, local petrol pump prices rose by more than Sh2 per litre.
Given increased prices of kerosene, the urban poor will as usual turn to alternative sources of energy, charcoal. Many more trees will be cut down, aggravating an already critical environment situation,
This is where Kenyans expect the Government to take a stand against oil marketing companies. Arbitrary price hikes should be resisted.
It is sad that whenever international oil prices increase, Kenyan companies immediately adjust pump prices. But when global prices fall, the firms pretend not to notice. This is an unfair and exploitative business practice for which the Government has a solution: freeze oil prices until the next consignment arrives. So far, no Government official has dared to condemn the oil companies.
Secondly, the National Oil Corporation of Kenya should by now have at least one petrol station in every major town in Kenya to set an example in oil price management and help meet rising fuel demand. The recent acquisition of 13 petrol stations from Shell BP is not enough. Moreover, all Nock stations ought to be working at full throttle.
The Government ought to manage oil price surges better. Why not re-introduce price controls? Or reduce fuel tax levy when international prices hit a certain high?
Whatever the method, the Government cannot escape blame for the traditional high costs of electrical energy due to inefficiencies and poor planning.
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