Thursday, 16 September 2010

Possible food riots in Kenya as fuel prices rise

Fuel prices crossed the 100-shilling mark today (16 September) over a row with a top oil marketer, threatening to ignite frustration and even riots similar to those seen in Mozambique a few days ago.

Beyond the fuel prices, food prices have been escalating in the east African nation. Recently, the president ignored by parliament's call that food prices be regulated.

On the evening of 15 September, major oil marketers in Nairobi, Shell, KenolKobil, Oil Libya adjusted their pump prices up by at least two shillings, the second time in a few days.
Now, in some pump stations, the cost of petrol, used by many motorists was selling at 99.97 shillings, 3 cents short of 100 shillings. A contributor to this blog reported seeing petrol selling at 100.10 shillings in a Nairobi suburb.

''Now, companies are adjusting their price display boards to take more than two digits,'' a source said, referring to the fact that price display has often taken two digits, but now, going beyond 100 shillings, adjustments have to be made.

A rise in fuel cost in Kenya, as is the case in may countries, results in rise in inflation and especially food prices. Already, over the past three weeks, the price of 2kg bag of wheat flour has risen to 126 shillings, up from 95 shillings.

The current rise in fuel prices in Kenya is not occasioned by international trends. It revolves around a row involving KenolKobil, as well as issues to do with inefficiency at the country's main refinery. The issue also revolves largely around fuel shortage on the market.

This is how the KenolKobil issue started and escalated.

The dispute between Kenya Petroleum Refinery Limited (KPRL) and KenolKobil started in 2006 when the oil refinery sought to raise processing fees. KenolKobil protested, citing alleged inefficiencies and quality of products coming from the oil refinery. (Indeed there are massive inneficiencies at the KPRL)

The row escalated after KenolKobil started processing its crude elsewhere, ignoring an law that requires all oil marketers to refine at least 40 per cent of their products at the national refinery. In fact, it is not just 40 per cent, it is actually more, a source said. KenolKobil has also been buying its oil products from other marketers, locally.

And in August, Energy Regulatory Commission (ERC) asked KenolKobil to explain why it should not be penalised for not complying with the law (above). Two weeks later, ERC wrote to KenolKobil informing the company that its licence had been revoked upon the expiry of a  notice it had been given to resolve the dispute with the KPRL. ERC last week insisted that KenolKobil importation license remains suspended.

In mid to late 2008, the price of petrol in Kenya rose to the highest point, 108 shillings a litre. This was attributed to the fact that international crude price was at 147 dollars per barrel. For now, the current internal crude price has remained at between 70 and 79 dollars per barrel.

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