Mathare MP Questions EPRA’s Fuel Price Calculation Formula
Monday, July 3, Mathare MP Anthony Oluoch. An ally of the Azimio la Umoja coalition, questioned the formula used by the Energy and Petroleum Regulatory Authority (EPRA). To calculate new fuel prices.
The lawmaker argued that the prices are determined based on the premise that petroleum products in transit on the high seas will be distributed throughout the country. Thereby informing the monthly price changes.
Oluoch noted that basing new fuel prices on the cost of landing is a significant error. The representative argued that the fuel often distributed immediately after an announcement already exists within the country. Rendering the landing cost formula flawed.
“EPRA must describe how this calculation is performed. They normally release the new rates on the fourteenth day of the month. In this case, can the fuel that we are consuming now be subject to 16% VAT when the same fuel was subject to the old levies that we received in the previous month’s rates?” Oluoch struck a pose.
The lawmaker was perplexed as to why prices soared while the suspended Finance Act of 2023 reduced four levies. To protect motorists from extremely high fuel prices.
“We were informed that four taxes were reduced in the calculation of fuel prices. Therefore, EPRA must come to the table and explain how this calculation is made, as stated by the Member of Parliament for Mathare.
Concerned with the opaque manner in which EPRA conducts its calculations, he also demanded a comprehensive explanation of how each tax contributed to the overall price.
ALSO READ: Senator Omtatah Issues Ultimatum to EPRA Over Fuel Prices
“When calculating the new prices, they typically factor in the cost of landing and the value of the dollar, as well as several other variables that, according to reports, affect the price of fuel.
“Can you confirm that fuel already at the pump of a gas station is subject to the landing cost and 16 percent VAT? Oluoch was perplexed by the fact that the fuel in question was already on the high seas or was supposed to have been ordered.
The member of parliament for Mathare asserted that Kenyan taxpayers’ trust in the regulator will be significantly eroded by the opaqueness of the formula used by EPRA to determine the new rates.
“The issue of transparency is of the utmost importance when we are informed that fuel prices have increased by 8 to 16%, while the Railway Development Levy has decreased and the Import Declaration Fee has also decreased by 3%.
“However, to provide Kenyans with the transparency they require, it is necessary to explain how this works. Oluoch stated, “We need to know how the increase in Value-Added Tax (VAT) will bring the price of gasoline from where it was to where it is now.”
NATIONAL CONVENTION
How EPRA Determines New Fuel Rates
EPRA calculates new fuel prices using a formula that takes into account several factors, including the average price of Brent crude oil over the previous 14 days and the exchange rate between the Kenyan shilling and the US dollar, according to a breakdown posted on its website.
ALSO READ: EPRA Announces July 2023 Fuel Prices Despite Finance Act Suspension
To determine the new fuel price, EPRA also considers the cost of transporting fuel to Kenya as well as retailer and wholesaler margins.
The formula is as follows:
Pr = mr + z + (Avg. Brent Price x Exchange Rate)
where:
Pr = the maximum retail pump price of the regulated product
mr = the allowed maximum retail gross margin
z = the delivery rate from the nearest wholesale depot to a retail dispensing site
Avg. Brent Price = the average price of Brent crude oil in the preceding 14 days
Exchange Rate = the exchange rate between the Kenyan shilling and the US dollar
Observers have criticized the formula used by EPRA to calculate new fuel prices. Arguing that it does not account for every factor that affects the price of fuel.
For instance, the formula does not account for the cost of refining oil. Which can vary based on the crude oil’s quality.
Mathare MP Questions EPRA’s Fuel Price Calculation Formula
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