Sunday, November 18, 2007

PUMP PRICES-NO controls soon

Yes, the local fuel prices have gone up in the past one month.A number of journalists and the Minister of energy have been threatening that there will be fuel price controls soon. I don't see that happening.
Here's why:

1.All the fuel for local consumption i.e. crude and refined product is imported by one contract called OTS(Open Tender system). The energy ministry gets the demands for all the oil marketers in Kenya.The individual demands i.e. Total,Kenol, Shell,Triton etc is aggregated into one amount.Then the Oil firms are invited to bid for the tender. The winner then imports products for the entire industry.Thus, the entire oil retailing industry in Kenya GETS PRODUCT AT THE SAME PRICE.

2.Since, the product is at the same COST price if you introduce price controls MARGINS WILL DECLINE.

3.Local oil retailers have higher cost structures and lower volumes than Multi-national oil firms.

4.PRICE CONTROLS will severely reduce profits for local firms because of their lower sales volumes.Multinationals will face reduced profitability but will be able to maintain their market share.
In simple terms price controls will kill local firms and help the Multinationals.


Ssembonge said...

When I hear such political pronouncements I am reminded of America in the 70's when they had the fuel crisis. You put a ceiling on supplies and you drive away the incentive to produce. For one, the govt could cut back the taxes it imposes on fuel.

Golman Sachs think oil is headed to $150 per barrel. Heck, they foresaw oil at $100 last year!

pesa tu said...

Well, i expect continued volatility in the oil price

coldtusker said...

50% of the price is taxes so tell the idiots to stop complaining and take a cut in their salaries!