14 March 2017

Kenya: High Diesel Prices to Drive Up Costs for Transporters in Kenya

Transport operators and farmers in Kenya will continue to bear the brunt of rising fuel costs after the price of diesel jumped the most for two months in a row.

Diesel, which fuels buses, trucks and farming tractors, is up by the biggest margin of Ksh1.17 ($0.01) to Ksh90.44 ($0.9) in Nairobi, after hitting a two-year high last month.

Petrol, mostly consumed by private cars, will from Wednesday cost Nairobi motorists Ksh0.78 more at Ksh101.05 ($0.1) a litre.

The prices will be in place until mid-next month when they will be due for a review again.

Wave of inflation

The higher costs look set to erode the purchasing power of motorists, push up operating costs for transporters and farmers, who could then pass the additional costs on to consumers, triggering a wave of inflation.

The Energy Regulatory Commission (ERC), which adjusts fuel prices every month, said the new prices were driven by the fact that the consignment to be consumed this month was bought when global oil prices had increased.

"The price increases were largely on account of higher international oil prices," said ERC acting director-general Pavel Oimeke.

Kenya relies on imported petroleum products after it shut down the Mombasa-based refinery in September 2013.

There is a lag of between 30 and 45 days between the placement of import supply orders and actual delivery of consignments at the Mombasa port, meaning local prices do not immediately reflect global market trends.

Kerosene, used mainly by poor homes, is up Ksh0.77 a litre to Ksh67.96 ($0.7) in the capital city.

The rally in the fuel prices is expected to put upward pressure on Kenya's economy where inflation rate hit a four-year high of 9.04 per cent last month driven by higher fuel and food costs.

Food shortage

For the thousands of farmers, who use tractors to prepare their land, an increase in the cost of diesel means a rise in the cost of ploughing that could force huge cutbacks on acreage under crops and lay the ground for future food shortages.

Farmers in the North Rift - Kenya's bread basket - reckon that hiring a tractor now costs Ksh2,500 ($25) per acre from Ksh1,800 ($18) in the last planting season.

Petroleum prices vary across Kenya due to transport costs that reflect how far a location is from Mombasa port where imported consignments land and are stored.

Mombasa consumers, therefore, enjoy the lowest retail prices at Ksh97.63 ($0.9) a litre for petrol and Ksh87.04 ($0.8) for diesel.

Petrol is most expensive in the northeastern town of Mandera at Ksh114.86 ($1.1) a litre while diesel costs Ksh104.24 ($1).

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