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Kenyan Government to Introduce Price Controls on Fuel

Dec. 7 (Bloomberg) -- Kenya will introduce controls on petroleum prices on Dec. 15, after the cost of fuel rose by at least 12 percent this year.

The new regulations will set limits on wholesale and retail prices of crude oil, natural gas, coal and other fuels, Energy Minister Kiraitu Murungi said in a government publication distributed today in Nairobi, the capital. Controls will be imposed on importers of petroleum products, refineries, storage facilities, transporters and sellers, he said.

Wholesale profit margins will be capped at 6 shillings (7 U.S. cents) per liter (0.26 gallons) and retail margins at 3 shillings, Murungi said. Fuel prices rose to 96.2 shillings a liter in September from 86.2 shillings in January, according to the Kenya National Bureau of Statistics. Oil futures in New York increased by 0.8 percent over the same period.

Oil marketers including KenolKobil Ltd., a Nairobi-based retailer, have opposed the new regulations, citing the government’s failure to consult them on the proposal. KenolKobil Chairman Jacob Segman said yesterday price controls may lead to product shortages in the country, East Africa’s biggest economy.

“KenolKobil is not opposed to price controls per se,” Segman said. “But these must be transparent and the result of regular reviews by independent, professional third-party bodies and must take into account all cost factors influencing the marketing of petroleum products, especially infrastructure costs and the damaging effect of system inefficiencies.”

Refinery Efficiency

Last month, Kenya blocked Kenya Petroleum Refineries Ltd. from raising prices following the jump in gasoline costs. The government told the refinery, which is 50 percent state-owned, to improve efficiency rather than increase charges.

Fuel retailers in Kenya increased prices last month because of what they termed inefficiencies at the refinery, as demand for fuel grew 7 percent, the refiner’s chief executive officer, Raj Varma, said on Nov. 24.

Kenyan President Mwai Kibaki earlier this year refused to sign a law capping the price of fuel, food and other essential items, the Daily Nation newspaper reported on Sept. 2, citing a memorandum sent to the office of the parliamentary speaker, Kenneth Marende. The introduction of price controls would contravene agreements signed with the World Trade Organization, the newspaper said, citing Kibaki.

To contact the reporter on this story: Johnstone Ole Turana in Nairobi at eombok@bloomberg.net.

To contact the editor responsible for this story: Antony Sguazzin in Johannesburg at asguazzin@bloomberg.net.

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