More pain at the pump as KPC bid to raise pipeline tariff gathers pace

The proposal to increase the petroleum transport and storage tariff by the Kenya Pipeline Company (KPC) will result in a 21 per cent increase in the levy over the next three years, further squeezing Kenyans at the pump. 

KPC, which is being privatised in a process that the government said would be concluded by March next year, has applied for a hike in the pipeline storage and secondary storage tariff.

This is the fee that oil marketers pay to use its pipelines to transport fuel and inland storage depots, which is further passed on to consumers.

In its application to the Energy and Petroleum Regulatory Authority (Epra), KPC has proposed the tariff to go up from the current Sh5.44 per cubic metre per kilometre to Sh5.56 in the first year, Sh5.76 in the second and eventually reach Sh6.61 per cubic metre per kilometre in the 2027/28 period. 

The increase to the end of the three-year tariff control period translates to a 21 per cent hike.

KPC said the higher fee would enable it to cope with higher operating cost of its network of pipelines and storage tanks across the country as well as build new infrastructure that it needs to cope with expected growth in demand for petroleum products in Kenya and the region.

Elizabeth Akinyi, head of corporate planning at KPC, yesterday told oil industry stakeholders that the impact at the pump will be an increase in the cost of fuel by 12 cents per litre in Nairobi, 13 cents in Nakuru and 15 cents in Eldoret and Kisumu during the first year of implementation if the tariff is approved as it is. At the pump, motorists in Nairobi pay Sh3.52 per litre of super petrol that directly goes to KPC.

“The impact at the pump will be 12 cents per litre in Nairobi,” she said, adding that in the first year, “the derived composite tariff is a marginal increase of 2.4 per cent above the current tariff of Sh5.44 per cubic metre per kilometre.”

“The significant increase is in 2027/28 when the composite increases to Sh6.61 per cubic metre per kilometre.”

She said, attributing the increase in the third year to the “impact of the capacity enhancement projects”.

Among the upcoming projects that KPC seeks to finance include the Mombasa-Nairobi pipeline capacity enhancement, construction of new storage tanks in Western Kenya, modernisation of data control systems and the replacement of decades old infrastructure that has reached end of life.

KPC owns a network of more than 1,300 kilometres of pipelines delivering fuel to different parts of the country. Its storage tanks have a combined capacity of 1.14 million cubic metres, an increase from 887,227 cubic metres three years ago. Additional storage follows the refurbishment of crude oil tanks at KPRL to handle refined petroleum products as well as construction of a new tank in Kisumu.

Akinyi spoke at a public consultation forum in Nairobi. Epra has since early October been subjecting the proposal by KPC to a public participation, with yesterday’s forum having been the last of the forums. 

Every three years, KPC applies for a review of its pipeline transportation and secondary storage tariffs to cater for the cost of operating its network of pipelines and fuel depots.

Epra said in reviewing the application, it would balance “cost recovery for critical infrastructure investments and operational sustainability, while ensuring that petroleum products remain affordable and reliable for consumers”.

If approved, the higher pipeline tariff will increase how much Kenyans pay in taxes and levies whenever they fuel, which has been subject to debate and seen as a big contributor to the high cost of fuel in the country. 

For every litre of super petrol that a motorist buys at the moment, taxes and levies account for Sh82.04 or 44.5 per cent of the pump price of Sh184.52 in Nairobi. 

The proposal to hike the pipeline and storage tariff comes after a series of increases in different components of pump price, all totalling to over Sh12 per litre of petrol. 

This year, Epra has increased the margins for oil marketing companies by Sh5 per litre that has seen margins for the oil firms go up to Sh17.39 per litre of super petrol from Sh12.39 early this year. There has also been a 200 per cent increase in the Epra levy to 75 cents from Sh25 cents. 

This had been preceded by the Sh7 hike in the Road Maintenance Levy mid last year and the doubling of Value Added Tax on fuel in 2023.

The Institute of Economic Affairs (IEA) observed this trend of piecemeal reviews that end up being significant, cautioning that it is becoming a new normal in the country.

“Over the past two years, Kenya’s fuel pricing structure has undergone a series of notable shifts, with each one quietly adding weight to the final pump price. These incremental adjustments are shaping a new normal in Kenya’s fuel pricing and deserve a closer look,” said IEA in a recent analysis of fuel pricing regime in Kenya. 

“All else being equal, the price of a litre of petroleum product has risen by a fixed amount of approximately Sh12 per liter over the past two years.”