5 October 2008
editorial
Last week, the global price of oil fell to a low of $97 a barrel, down from a high of $147 in July. This represented a 34 per cent fall in price in just three months.
In the event, it is easy to understand the indignation across East Africa that local oil companies have not passed on the fall in global prices to their consumers.
The average premium petrol price in Nairobi last week, for example, stood at Ksh102 ($1.46) per litre, or just seven shillings below what it was in July.
In their defence, oil companies insist that they are still dealing in expensive stock purchased several months ago, stock that needs to be exhausted before the new, lower prices kick in.
The marketers also say that exchange rate fluctuations that have seen the shilling fall from Ksh65 to the dollar in the past few months to Ksh70 today, must be taken into consideration.
Other reasons cited for the slow turnaround in prices include distribution bottlenecks and the inefficiencies at the antiquated refinery in Mombasa.
Consumers' complaints, however are not without merit. While the factors cited by the oil marketers could explain the long lag period experienced when prices are on a downward trend, it is instructive that prices routinely rise within 24 hours when the trend is in the opposite direction.
This has given the perception that oil companies are inclined to irregularly benefit from the fluctuations of global oil prices.
The companies need to realise that this perception can be counterproductive. It serves to strengthen the voice of those calling for price controls.
Consumers, and the emerging pro-regulation political lobby, also need to think through their proposals. Experience from other countries has shown that controls can have far-reaching negative effects on the supply and availability of fuel.
The right approach must be non-legal approaches to influence prices. In this, public investments in the oil sector, such as the petrol stations now being rolled out by the National Oil Corporation of Kenya will be critical. Efforts at market formation will also be greatly enhanced through such interventions as consumer information.
Elsewhere, the government must swiftly phase out the antiquated systems at the Mombasa refinery. Delays in offloading crude at the port must also be addressed to attain a seamless and efficient chain that responds quickly to market conditions.
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