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DRAFT 01

COMMISSION PAPER ON PETROLEUM PRICING REGULATIONS STAKEHOLDERS FORUM

Background

1.0 The Kenyan economy underwent major structural reforms since early 1990s with a view to
improving the overall macro-economic efficiency, increase incomes, create employment
opportunities and improve the performance and productivity of public investments. These
reforms included abolition of price controls allowing the market forces of demand and supply
to determine prices and resource allocation, liberalization of foreign exchange and interest
rate regimes, privatization of Government stakes in non-strategic public institutions and
divesture of Government interests in activities of a commercial nature.

2.0 In line with these public sector reforms, the Kenya Government deregulated the downstream
Petroleum Market operations on October 27 th 1994. These reforms included liberalization of
distribution and pricing of petroleum products and partial liberalization of product supply.
Some of the reforms included abolition of the white oil rule, abolition of NOCK’s 30% crude
oil supply quota, liberalization of transportation modes and attendant tariffs, legalization of
minimum operational stocks and introduction of suspended duty on refined products
imported directly into the country to cushion the refinery from competition from efficient
refineries in the gulf region.

3.0 In seeming to build a case for petroleum industry deregulation in Kenya, Arthur D. Little, in a
study undertaken in 1993 posited that “the petroleum end-use prices would go down in a
competitive market environment free of exogenous factors as long as the country was not
going through an inflationary period”. Since liberalization, the oil industry has attracted a
number of operators engaged in importation, exportation, distribution and wholesaling of
petroleum products.

Situational Analysis

4.0 However, it has been observed that the post deregulation retail prices of petroleum products
have not closely followed the changes in international oil prices. It has been argued variously
that oil companies are quick to adjust retail petroleum prices upwards when international oil
prices are rising and slow to lower prices when oil prices are falling. This implies that retail
petroleum prices are sticky downwards which generates non trivial economic efficiency and
asymmetrical costs concerns on the downstream gasoline market.

5.0 In particular, when the international crude oil prices were rising during 2007 and 2008 Oil
Marketing Companies quickly passed on these increased costs to consumers, but took
inordinately long to pass on cost reduction benefits to consumers when international oil
prices were on a downward spiral in the last quarter of 2008. The load port price of Murban
crude oil dropped from a record high of U$ 137.35 per barrel in July 2008 to US$ 42.10 per
barrel in December 2008 while the pump price of super petrol dropped from Ksh. 110.00 per
litre to Ksh.78.00 per litre over the same period

6.0 This behaviour by the Oil Marketing Companies generated a lot of public concerns on the
overall economic efficiency and rationale of unfettered market mechanisms in the retail
petroleum market in Kenya and literally re-kindled agitations for re-introduction of price
controls.

7.0 In October 2008, the Honourable Minister for Energy asked the Energy Regulatory
Commission (ERC) to develop a formula for regulation downstream petroleum prices for his
consideration. Consequently, on 14 th November 2008, ERC published Draft Retail Price of
Petroleum Products Regulations in the Kenya Gazette and invited comments from the public
and other interested parties. In addition, the Energy Regulatory Commission has developed
a concept paper enumerating the petroleum supply chain logistics and their cost implications
on downstream retail prices. The ERC concept paper is attached hereto at ANNEX I. In
addition a summary matrix on issues raised by stakeholders is attached as ANNEX II.

8.0 Upon review of the comments by the stakeholders, the areas of most concern were recovery
of actual incurred costs, return on investments, margins, financing costs and inventory days.

Proposed Way Forward.

9.0 Cost Drivers

ERC is of the opinion that there is consensus for recovery of the cost drivers actually incurred in
the supply chain for retail petroleum into the pricing formulae. These cost drivers are explained in
detail in Annex 1.

10.0 Wholesale Margin

10.1 The initial ERC position was to provide the operators a gross margin (wholesale
and retail) of 10%. Based on submissions from the stakeholders and further
consultations within the Commission, a percentage margin for the petroleum
business has been found to be unsustainable. It was therefore decided that the
margins should be based on actual numbers as shown below.

10.2 Based on Oil Industry Information, the Wholesale Margin for Oil Companies
operating in the Country currently is about Ksh.5.00/Litre for companies with
retail network. However, inclusive of the average wholesale margins for other
business segments namely, re-selling to non-affiliated re-sellers and consumer
customers reduces the wholesale margin for the Oil Industry in Kenya to an
average of about Ksh.3.60/Litre. This is because the latter two business
channels are highly competitive and the margins thin which reduce the global
average wholesale margin for a company. This information is collaborated by
financial information from published accounts of two Oil Companies currently
listed in the Nairobi Stock Exchange whose Gross Margins range from 3.32 to
3.87Ksh/Litre in their 2006/2007 accounts.

10.3 Calculation based on a 40/60 split between the retail and other market
segments and a maximum margin of ksh 2.00 per litre for the other segments
give a maximum gross margin for the retail business of ksh 6.00 per litre.

2

00/LITRE. The submissions made to the Commission by Station Dealers indicate these margins have been fixed by the suppliers for the last four years and therefore insufficient due to erosion by inflation. These retail margins will also include station operational losses of about 0.0 Inventory/Stocks and Trigger Dates To resolve the issue of inventory/stock holding days and trigger dates for new prices.15/Litre for Automotive Gas Oil (AGO) and Illuminating Kerosene (IK). it is proposed that ERC recommend a 20% escalation of the existing retail margin to a maximum Ksh. and Ksh.2.30/Litre to Ksh. 11. 12.5%.3.0 Retail Margin 11. 14. The Commission further recommends that new whole and retail prices announced by the Commission will take effect on the 21 st Day of every month or the next working day where the 21st Day of the Month is a public holiday or a week end.0 The Commission has therefore revised the Draft Petroleum Pricing Formulae to address the issues raised by stakeholders.80per litre for kerosene and diesel.2 To ensure that the retail business is whole.1 Oil Industry statistics indicate that petroleum dealers are currently enjoying Retail Margins ranging from Ksh. The revised formula is attached hereto as ANNEX III.0 Recommendations The Commission is invited to note the content of this paper and to:  Approve its presentation together with the attachments to the stakeholders for discussion.2. and  Provide further guidance as necessary. 13.00/Litre for super and regular petrol and ksh 2. 3 .50/Litre for Premium Motor Gasoline (PMS) and Regular Motor Gasoline (RMS). the Commission recommends that prices for a given period should be based on the average rolling product costs for the previous three months. This information is also collaborated by the high turnover of Petrol Station Dealers in the country.2. Considering that the oil industry operators are not homogeneous and the pricing regulations are primarily targeted on the network business of the operators. This will cushion consumers from sudden price changes while allowing the marketing companies to recover their costs. 11.6. it is proposed that the Commission recommend a MAXIMUM WHOLESALE MARGIN OF KSH.

Crude oil is imported in large ships (80. INTRODUCTION The demand for petroleum products in Kenya is met through two ways: a) Importation of crude oil and refining the same at the Kenya Petroleum Refineries Limited (KPRL). The balance 50% of the demand is met through importation of refined products.1. 3. IMPORTATION MECHANISMS.2. which is coordinated by the Ministry of Energy. This becomes the Free On Board (FOB) loading port price applicable to the tenders called in Kenya. tenderers quote a fixed Freight and Premium figure to bring the crude from the loading port to Mombasa.000 Metric tons) and therefore freight on crude is not a major component of local prices. Kenya’s crude imports are made up of about 90% Murban crude oil from Abu Dhabi. 2. 3. The Ministry of Energy coordinates another OTS for the importation of 35% of refined products in which all licensed companies are entitled to participate. which meets about 50% of the total petroleum demand. The licensed importers share this base load prorated to their market shares.1. 2. marketed by the Abu Dhabi National Oil Company (ADNOC).3 The following are all the components in the landed cost of crude delivered to the refinery:  Free On Board ( FOB) cost  Freight and Premium. 4 . Through this arrangement KPRL is protected through a minimum base load processing of 1.6 million tonnes of crude per year. 3. COSTING OF CRUDE OIL . The companies are allowed to import the balance 15% on their own outside the tender requirements. Crude is imported through an Open Tender System (OTS). Crude oils are traded openly in the international markets.105% for both marine and war insurances. 2. 3.  0. This supplies about 50% of the total demand.2. 3. For the purpose of the OTS. b) Importation of refined petroleum products to meet the balance 50% of the demand. Early each month ADNOC sets the Official Selling Price (OSP) of Murban crude oil lifted during the previous month. ANNEX I PETROLEUM SUPPLY CHAIN LOGISTICS FOR KENYA 1. 197 of 2 nd December 2003.2 The balance 10% of crude imports is Arab Medium crude from Saudi Arabia. All the licensed importers of petroleum products are required by law to participate in the crude processing through Legal Notice No.

5% Ocean Loss allowance (for loss not covered by insurance) . 4.82 /MT Port Handling charges.1 International prices for refined petroleum products are available on daily basis in such publications as Platt’s and Reuters for the major trading markets. 5 .  Free on Board (FOB). Quotations for trading are based on the mean prices for 3-5 days around the bill lading (B/L) day as FOB price plus a freight and premium component. 4.0998% for marine and war insurances. 4. ksh 1. The tender document specifies the vessel arrival date and therefore indirectly fixes the loading date range.  0.85% Letter of credit charges.5 CIF importer administration fees.  Freight and Premium.0 REFINERY PROCESSING.  Potential demurrage. tenderers quote a fixed Freight and Premium figure to bring the specific product from the loading port to Mombasa.  Cargo clearing charges.  2.  0. 5.9.50/MT +VAT Discharge inspection fee.  0. For the purpose of the OTS.5% CIF Importer Admin. the importer has to pay a refining fee to KPRL for processing the crude to final products.20 per litre). COSTING OF IMPORTED REFINED PRODUCTS 4. 5.2% Letter of Credit charges.  US$ 3. fees  Ksh.2. 4.50 /MT +VAT Discharge Inspection fee.  Cargo clearing charges.25% Import Declaration Form (IDF) fee.  Potential demurrage.  0.3 The following elements are the components to obtain a final landed cost of refined petroleum products.82/MT Port handling charges.  Ksh. Annex 1( C) shows the landed cost build up for refined products. Annex 1(A) shows the landed cost build up of crude oil excluding the last two items. For imports into Kenya the relevant prices are those in the Arabian Gulf (AG) and the Mediterranean Sea (MED).  2.5% Ocean Loss allowance.1.  1.  US$ 3.  0.4/bbl (approx.  0.1 After the crude is landed. The current average processing fee is US$2.4 For both crude and products the dollar exchange rate used has an impact on the final landed costs. The OTS agreements specify the rate to be used as importer’s commercial bank’ selling rate on the bill of lading date.75% Import Declaration Form (IDF) fee.

2 The refinery also uses 5% of the crude as fuel and loss in its operations. Kisumu and Eldoret.3 Plans are at an advanced stage to build a new 10 inch line parallel with the existing 8inch diameter Nairobi – Eldoret pipeline.3 Because of its old technology KPRL ability to add value on crude is very limited.0 KENYA PIPELINE COMPANY (KPC) KPC owns and operates the white petroleum products pipeline from Mombasa to Nairobi and onwards to Nakuru.2 The Mombasa – Nairobi pipeline is undergoing capacity expansion from the current 440.5.000 litres per hour. The Transport and Storage agreement between KPC and oil marketing companies provides for a maximum operational loss allowance of 0. The proposed method prorates the crude cost plus refining fees to the cost of importing similar products.0 DISTRIBUTION DEPOTS In Nairobi and Mombasa.4 To assign costs to the products from the refinery. 5.53 per litre plus VAT.0 KIPEVU OIL STORAGE FACILITY. 6. a cost allocation method is applied. The marketing companies incur overhead costs and operational losses (maximum allowed is 0.000 litres per hour to 880. This is a loss which has to be recovered in the pricing mechanism. Attachment 1(B) is a sample cost allocation calculation.1 KPC is currently unable to meet market demand.1. 8. The charge for using KOSF is US$3. This has resulted to use of road transport from Mombasa to Nairobi. 33% of the crude is produced as residue (fuel oil) whose value is almost half that of crude. This loss of value is recovered in the prices of the higher value products.0/M3 plus VAT (ksh 0. For a light crude like Murban. It is managed/operated by Kenya Pipeline Company. This is expected to be achieved by August 2009.) 7.28 per litre.25% volume. KPC and KPRL do not have depot facilities for loading delivery trucks. 8. Therefore in these area products are pumped into oil depots belonging to the oil marketing companies. 8. 6 . The charge for transportation from Mombasa to Nairobi is Ksh. Western Kenya and the neighbouring countries.0 ROAD BRIDGING FROM MOMBASA TO UPCOUNTRY DEPOTS 8. This is the government owned import tank farm for refined products.5%) in these depots. 5. 9. The losses are reconciled every six months and the actual losses are used for stock reconciliations.

 Company Owned/ Dealer operated. 11. These are few but the oil companies sometimes run their stations when they cannot find independent dealers. Stations incur normal operational losses of product with a maximum allowed level of 0. They are of varying standards and sizes.  Dealer owned/company leased. These are the independent stations which developed after deregulation in 1994.5% 7 .0 DELIVERY FROM DISTRIBUTION DEPOTS TO STATIONS/ CUSTOMER SITES From the distribution/wholesale depots products are delivered by independently owned small/medium tankers to both customer sites and retail outlets. KPC has depots which are used by all oil companies. Eldoret and Nakuru. Sometimes oil companies lease stations which have been constructed by either dealers or individual businessmen.In Kisumu.0 RETAIL DISPENSING SITES There are three types of retail sites:  Company Owned/ Company operated sites. In this case the oil company owns the station and signs a dealership agreement with an independent business person  Dealer owned/Dealer operated. 10.

USD/MT 8.1967 0.033 WAR RISK (1.KS 1.045 Ksh/mt Port Landed (KShs/Mton) 26.00 BBLS/MT 7.962) (0. 2008 rates.0Usd/mt)+VAT 0.221 0. ANNEX 1 (A) SAMPLE CALCULATION FOR LANDED COST OF CRUDE CRUDE OIL MURBAN LZAKUM LOAD PORT Jebel Dhana Das Island Arabian Gulf from Quon Island 1.962) Freight 1.228 Stevedoring Charges @ $1.75% CIF) 0.003*CNF*0.189 337.561 8 .344.304 0.92 Quion Island to Mombasa 7.012 CIF 42.220 Port Landed (US$/Bbl) 44.9 .471.950 LC CHARGES (0.396 42.797 LANDED KPRL (US$/Mton) 339.900 Premium (Item 16/08 & 20/08) (0.656 1.5%*CIFLW) 0.070 7.920 AFRA Rate (WS 118.Dec' 2008 42.70/1.003*CNF*0.100 41.855 26.033 0.5/MT 0.0770%) 0.257 43.855 26.50 /MT )+Sampler 1.045 78.9% 118.626 7.232 CNF 42.85% CNF) 0.358 Shore Handling (@2.656 SGS .012 0.360 0.166 Exchange Rate (Month average) 78.1963 CIFLW 44.440 42.946 Ocean Loss(0.214 CBK TAXES (2.797 Inspection Charges (SGS/ITS) ITS -( KSH 1.643 WS100.344.478 44.0275%) 0.471.60 for 50kt/30kt LANDED KPRL (KShs/Mton) 26. 01/Dec/2008) 118.07 0.170 MAR INS (1.258 1.9% $/Bbl FOB.955 0.

35 4171332 3660583.79 701.19 36779281 ARAB MEDIUM 22062 308. 08 COST ALLOCATION FOR PRODUCTS EX KPRL.43 374.55 270.43 266.COST OF REFINERY GENERATED PRODUCTS(CIF+LANDING COSTS) allocated cost QUANTITY COST PRODUCT MT (USD/MT) COST(USD) $ $/mt sh/lt LPG 2563 799.48 944716 829042.26 29.PROCESSING FEES 2680897 TOTAL COST OF CRUDE + PROCESSING FEES 46257943 2.93 781700 685986.43 380.81 IDO 2008 470.11 14152548 12419675.59 FO 180LS 15241 303.84 212374 186370.CRUDE + PROCESSING.36 420.11 6812403 5978275. ANNEX 1(B) SAMPLE COST ALLOCATION CALCULATION DEC.8775575 9 .70 FUEL/LOSS 5909 0 0 TOTAL 130495 52712149 46257943 Cost allocation Factor 0.59 AGO 29539 479.46 412.89 2050110 1799089.95 RMS 1831 426.34 948430 832302.87 FO 125 13528 308. 1.12 5200006 4563304.08 21.86 PMS 15729 433.61 DPK 23472 546.CRUDE (MT) (USD/MT) COST (USD) MURBAN 108433 339.78 266.41 201.43 479.59 TOPS 2596 365.13 12818693 11249140. QUANTITY PRICE A.65 20.26 320.12 6797766 SLOPS 0 0 0 TOTAL 130495 43577046 B.45 27.00 BITUMEN 924 229.12 4619837 4054172.00 FO 180 17155 303.

crude cost and refining defined in the regulations.10 per ton). Cost of  Use actual  Include demurrage cost. refining programme from  Allocate crude  Allocation formula should be for all companies. allocation methods. 10 . charges. cost of importing  Crp should be “deemed” as same refinery refinery may not meet products programmed yields.16*80)/1000 ie charges. ANNEX 2 SUMMARY MATRIX OF PETROLEUM PRICE REGULATION ISSUES RAISED BY STAKEHOLDERS Item Issue Original ERC position Comments/ Suggestions Recommendation 1.  Private imports incur demurrage (average indicated at $5 . same month. included in costs of product costs for each imported products--  Include clearing and inspection parcel. (Currently  Include KOSF (3*1. included calculation to be Therefore cost of Arab Medium  Allocation should be based on last cargo included in the benchmarked to imported. Cost of  Actual crude  Companies have different  Use KPRL deemed products tender cost. same refinery crude import costs for  Murban crude is imported yield. ksh 0. 2.  Use Hydrocarbon values for allocation for the month of pricing. regulations.293 per liter  Inspection charges already included in the OTS calculation.  Use both industry processin fees pro-rata  Use global refinery calculated product g import parity of import parities and programmes. (hydrocarbon values)  Irp—what if there is no loading in a month.  OTS imports do not incur demurrage charges since berth and storage are assured.  KOSF charges be imported industry tender  Include KOSF charges. monthly but Arab Medium  Refinery loss  Sample cost allocation crude is imported quarterly.

overheads to be  It is not easy to recovered in the quantify since some gross margin marketers have no depots and rely on hospitality. operational expense n costs.3.  KPC tariff is inclusive of depot costs in Nakuru. Hospitali  Not considered  Should be taken into  This is an ty separately as consideration operational expense Charges. 5.(Mombasa- Nairobi road rate is 11 . in the margin.53 a to per litre plus VAT). Mombas (currently ksh 1.13 per to be taken care of part of liter. Exchang  CBK mean  Companies buy dollars from  Use OTS importer’s e rate selling rate for commercial banks not CBK commercial bank month of mean rate on bill of importation. Kisumu and Eldoret. 100% KPC. 6. lading date. Cost of  Not considered  Usually higher than tender Cost of these imports products will not be considered purchase as they will be d outside unnecessary with the the upgraded KPC tender pumping capacity. Bridging  Pipeline tariff  Use combined road rate at  For super. upcountr  For diesel. Kisumu and Eldoret. 7.  KPC tariff is inclusive of depot costs in Nakuru. regular costs 15% and pipeline at 85% and kerosene use from due to KPC breakdowns. overheads to be  It is not easy to recovered in the quantify since some gross margin marketers have no depots and rely on hospitality. this was taken as to be taken care of part of in the margin. Depot  Not considered  Should be taken into  This is an operatio separately as consideration. this was taken as  Suggested at ksh 0. to use y depots 15% road and 85% to take care of pipeline pumping constraints resulting in use of road. system 4.

radius is ksh 0. t rates regulated. regulated.50 per litre plus vat) 8. rates for 40km NOCK rates. 4.  Current delivery  Used current  Basis of setting rates. litre  Consider town zone radius  Current delivery as 35 km. currently shs. 12 .42  Suggested figures are low..00 kilometre per litre. fixed or  To be controlled. rate outside town is ksh 12.  Triggers for changes. Transpor  Would be  Clarify if controlled.

Maximum retail margins.9. taxes to cover costs and create sufficient wholesale and ROI. depot and  KPC losses at 0.25% Losses captured in the station losses should all be of weighted average tariff included.  Current four year old retail margins at ksh per liter 2. Margin of  Percentage margin is not ksh.  Fix margin per liter or 2. and diesel.6.3947 per liter.  Margin should be Wholesale benchmarked. Maximum retail minimum and maximum margins at ksh margin per liter.50 are too low. product cost.  Low margin can cause contracting many retail stations to a single management company resulting in loss of jobs.90 per liter.80 per marginalization of dealers litre for kerosene and entrepreneurship.00 per litre for  10% is too low.  Low margin can cause closures of outlets.  Set threshold for maximum and minimum gross profit. super and  Separate wholesale and regular petrol retail margins to avoid and ksh 2. 13 . recovered in the gross margin 10.00 per beneficial to stakeholders. this was taken as  Station losses part of included in the overheads to be margin.5% for Mombasa refinery cost 0. and Nairobi of costs allocation at the respective  Station and localities. It litre. 3. Margins  Integrated 10%  Proposed margin is low and  Percentage margin on cost plus does not cover operational not sustainable.  KPRL losses  Suggested station loss of  Depot losses at captured in the 0. 3.  Should create incentive to invest. Product  KPC losses to be  KPRL.5% of pump price subject to a minimum of sh.15 – 2. is volatile and cumbersome. 1.  Suggest 4. depot losses not  Losses for other considered depots captured in separately as the KPC losses.5% translated to ksh 0. KPC.

14 . Margin should not include taxes.

average costs and dates  Pipeline fill and dead stocks volumes to be used and should be considered. months.11 Differentia  Not considered  Such products should be Differentiated products ted exempted from the to be capped at the products(e regulation maximum determined . implemented on the  Minimum operational stocks 21st Day of every (22days). inefficiencies.33 per overheads to liter. be recovered in the gross margin 15 Transpare   Formula should be subject Formula application ncy to scrutiny. will be transparent 15 .7633 14 Return on  Not considered  Will be key issue to Investment separately as determine continued Included in the (ROI) this was taken operations. KPRL (45days). announcement and implementation.  Set firm triggers  Use average weighted costs of products (crude and refined for prior there months.9535. Shell V) priced. the 21st Day of the  Use average weighted costs Month is a public of products (crude and holiday or a week refined for prior three end. maximum gross margin overheads to  Suggested figures based on be recovered each product: in the gross Ksh per liter PMS 1.  Usual inventory is 60 – 90days. 12 Inventory  Draft implies  Affected by KPRL Holding. Total working day where est. inspection. one month. cost separately as  Recoverable VAT this was taken  Part of acquisition cost and Included in the as part of should be included.g. margin AGO 0.0323.  Establish forward curve 13 Finance  Not considered  Duty prepayments. and   One month not Three month rolling Trigger representative. IK 0. maximum gross margin as part of  Suggested ksh 0.72 days. pipeline fill (5 month or the next days).  Set firm dates for determination.

18 Definition  Super petrol. 24 Penalty  Applicable to  Apply to the retailer. products. 20 Administra  Not specified  Independent body ERC will implement the tor/ but ERC regulation Regulating implied. EHS concerns. Penalty will apply to operator of the operator of the 16 . illuminating products’ automotive  Formula should be kerosene and not Jet diesel expanded to cover all Fuel. regulations will be agreement  Govt should import crude developed for other s and products. industry activities. and illuminating kerosene.  Allow industry to self regulate.  Pricing of Furnace oil and Industrial diesel will not be regulated 19 Others   Consider improvements in the efficiency and costs reduction in the supply chain. 17 General  Actual costs to  Proposed structure does not Formula will cover all be fully allow for full recovery of determinable cost recovered costs and inefficiencies. recovered. imputs. 22 Level  All companies  All companies must process Regulations will be playing will be treated crude applied equitably to all ground equally licensees 23 Current  Not considered  Documents to be reviewed  Separate OTS in line with this regulation.  Not easy to split dual  Formula will be of regular petrol. Noted  Exclude the current 20% own imports from the regulation  Govt/ERC should consider wider consequences—job losses. body 21 Volumes to  Global volumes  Company have different To use Global industry be used to be used product mixes volumes.  Enforcement of OTS will lower the cost of products although it is subject to KPC pumping capacity. reduced investments etc  Set up team to come up with comprehensive regulation. purpose kerosene into jet a1 applicable to ‘petroleum kerosene .16 Auditing   Independent auditor to Industry can appoint verify announced prices. auditor to verify application of formula.

17 . contravening the regulation. formula will be under/over would be implemented on recovery implemented agreed trigger date on agreed due date 27 Cross  Not  Current costing methods subsidizati considered. regular and kerosene and ksh 0. 25 Taxes  Actual taxes to  Include different taxes for Remissions for be used products from KPRL and products obtained from from imports. ERC role 29 Parties in  Importing/  Consider role of There will be different the supply distributing independent station owners. 31 Environme  Not considered  Equation does not consider ntal cost environmental cost for  Difficult to using petroleum. 28 Public  Not mentioned  Make it an agenda for ERC. retail site  Penalty should be increased retail site found to three million. ERC undertakes to do Education but part of so. dealers of retail outlets 30 Supply/  Not considered  Demand of petroleum Price to be determined Demand inelastic which results in will recover cost and interplay price determined by the give a margin to cover formula high.45 per liter for super.30 per liter for diesel) 26 Compensat  Not considered  Consider possible Not required as ion for as formula mechanics. formula. allowed wholesale and chain companies and retail margins. ROI and overhead expenses. This incorporate in should be considered. refining at KPRL to be included (ksh 0. result is motor fuels Regulation will apply on subsidizing furnace oil and only to products in thus industrial activities.  Other regulations can be used to handle this. retail outlets.

12 of 2006. “Commission” means the Energy Regulatory Commission established under section 4 of the Act. 18 . Eldoret and Kisumu. 2. 2006 (No. ANNEX 111 REVISED DRAFT REGULATIONS. In these Regulations. No. 2008 1. unless the context otherwise requires- “Act” means the Energy Act. 2008. “wholesale depot” means the petroleum receipt. THE ENERGY ACT. These Regulations may be cited as the Retail Pump Price of Petroleum Products Regulations. 12 of 2006) THE RETAIL PUMP PRICE OF PETROLEUM PRODUCTS REGULATIONS. storage and truck loading facilities owned by companies carrying on petroleum business in Mombasa and Nairobi and by the Kenya Pipeline Company in Nakuru. “Minister” means the minister for the time being responsible for energy.

shale. Kerosene and Automotive Diesel. Regular petrol. (4) A person convicted of an offence under this Regulation shall be liable to a fine not exceeding one million shillings or the withdrawal of the operating licence or both. Regular Petrol and Kerosene Pwa  Pu  K pt  L p  Ld  mw ii) For Automotive Diesel Pwb  Pu  K ptd  L p  Ld  mw b) Retail Pump Prices 19 . storage. “petroleum” includes petroleum crude. 4. “petroleum products” means Super petrol. coal. “maximum wholesale price” means the maximum prices of petroleum products at a wholesale depot. “retail dispensing site” means premises where petroleum is stored in bulk in one or more tanks and dispensed to consumers for their own use and includes filling and service stations. (2) The formula shall consist of the factors described in Regulation 4 of these Regulations. “retail pump price” means the maximum prices of petroleum products at a retail dispensing site. “petroleum business” means a concern carrying on the importation. transportation or sale of petroleum. 3. natural gas and any liquid or gas made from petroleum crude. peat or any other bituminous substance or from any product of petroleum crude. refining. natural gas and includes condensate. schist. The maximum wholesale and retail pump prices of petroleum products in shillings per litre shall be determined as follows- a) Wholesale Prices i) For Super Petrol.(1) There is established a formula for determining the maximum wholesale and retail pump price of petroleum products at a wholesale depot and a retail dispensing site. “refined petroleum products” means the products yielded from the refining of petroleum. natural gas. (3) The prices determined using the formula set out in Regulation 4 of these Regulations shall be the maximum wholesale and retail pump price of petroleum products which a person carrying on petroleum business shall sell at a wholesale depot and at a retail dispensing site.

t ed =Excise Duty. T = total taxes and levies for petroleum products in shillings per litre = ( t ed  t rml  t pdl  t prl ). Pwa = Maximum Wholesale price for Super Petrol. Regular Petrol and Kerosene. Regular Petrol and Kerosene Pra  Pwa  mr  z ii) For Automotive Diesel Prb  Pwb  mr  z Where. C irp = average unit cost of the refined petroleum products imported through the open tender system in the previous three calendar months in shillings per litre. t rml =Road Maintenance Levy. Vcrp = average volume of the petroleum products obtained from crude refined at KPRL in the previous three calendar months in litres. C crp = average unit cost of petroleum products obtained from crude refined at KPRL in the previous three calendar months in shillings per litre. Virp  Cirp  T  F   Vcrp  Ccrp  T  S d  Pu  Virp  Vcrp Virp = average volume of the refined petroleum products imported through the open tender system in the previous three months in litres. 20 . Prb = Maximum retail pump price of Automotive Diesel applicable in shillings per litre. For a retail dispensing site i) For Super Petrol. Regular Petrol and Kerosene applicable in shillings per litre. Pu = weighted average cost in shillings per litre in the Kenya Petroleum Refineries Limited (KPRL) and in Kipevu Oil Storage Facility (KOSF). Pwb = Maximum Wholesale price for Automotive Diesel Pra = Maximum retail pump price of Super Petrol.

9. K pt . The unit cost of refined petroleum products Ccrp  shall be the actual landed cost of crude plus refinery fees for the month’s crude imports allocated to the refinery products yields benchmarked to the cost of importation of the same refined products. K ptd= transportation charge from Mombasa to the nearest wholesale depot made up of 85%  K pt  and 15% road bridging costs. z = delivery rate from the nearest wholesale depot to a retail dispensing site in shillings per litre which shall be as set out in the schedule hereto. L p . t pdl =Petroleum Development Levy. z mentioned under Regulation 4 of these Regulations. L p =Allowed pipeline losses = 0.3% Pu  K pt . Ld .30/litre IK and AGO at K pt= pipeline tariff from Mombasa to the nearest wholesale depot as per the Schedule hereto. 8. F = KOSF Charges which shall be $3 / M 3  VAT S d =Suspended Duty which shall be Kshs 0. mr = Allowed retail dealers gross margin which shall be Kshs 3. The factors. The Minister may review the formula mentioned under Regulation 4 of these Regulations as and when he may deem fit. 5. m w .00 per litre. The unit cost of imported refined petroleum products  Cirp  shall be determined in accordance with the calculation used in the open tender system for importation of petroleum products. The importer’s commercial bank mean rate on bill of lading date shall be used for converting the imported refined petroleum products and crude oil costs determined under Regulations 5 and 6 of these Regulations from United States dollars to Kenya shillings. 6. IK=     0. t prl =Petroleum Regulation Levy.45/litre for PMS and RMS. 7. AGO= 0.3% Pu  K ptd  mw = Allowed oil marketing company’s gross wholesale margin which shall be Kshs 6. the refinery fees and KOSF storage charges shall be determined by the Commission. Kshs 0. The Commission may review the calculation of the maximum wholesaleretail pump price of petroleum products determined under Regulation 4 of these Regulations as and when it may deem fit for purposes of monitoring compliance. 10. 21 . mr .25% Pu   Ld =Allowed losses in the depot for PMS and RMS = 0.20 per litre inclusive of station losses. K ptd .5% Pu  K pt .

Bridging rates Mombasa to Ksh 6. Nakuru.105 plus VAT Eldoret 2.530 plus VAT Nakuru 2. Delivery rate Within Town 0. Pipeline Tariff Mombasa 0. per 1000 liters 22 .706 plus VAT Kisumu 2.5 per km Nairobi.42 plus VAT (40km radius)  z Outside Town Ksh 12.00 per kilometre per 1000 Litres plus VAT 3.703 plus VAT 2. Schedule (Regulation 4) Pipeline tariff and delivery rate Location Rate Shs/litre 1.000 K pt Nairobi 1.

Kisumu and plus VAT. Eldoret 23 .