In a bid to regain its petroleum export market, and make its offer more attractive compared to its competitors like Tanzania, Kenya has drastically cut down its pipeline tariffs by 50 per cent. Kenya had lost about 30 per cent share of its petroleum export market to Tanzania mainly due to the high tariffs charged for pipeline transport. Kenyan Government is also taking aggressive measures to curb fuel adulteration and smuggling, which has eaten into the government’s tax collection recording $340 million loss annually.
Last week, the Kenya Revenue Authority in collaboration joined hands with a multi-agency team to fight illicit trade and intercepted a consignment of 7,000 litres of diesel fuel smuggled from Ethiopia. It may be noted that according to the Organisation for Economic Co-operation and Development the East African Community loses over $500 million in tax revenue annually due to counterfeiting.
Kenya hopes that through intensified surveillance and crackdown on fuel adulteration it will be able to recapture the petroleum export market it lost to Tanzania.
The lower pipeline tariff is expected to encourage petroleum and petroleum products importers to use the Mombasa port for products destined for neighbouring landlocked countries like Uganda, Rwanda, Burundi, South Sudan and the Democratic Republic of Congo. As per the new tariffs imposed by the Energy and Petroleum Regulatory Authority(EPRA), oil marketing companies need to pay only $30.89 per 1,000 litres against $60 to transport fuel using Kenya Pipeline Company facilities. Further downward rate revisions are expected in the next three years. The rates will further be lowered to $30.65 in 2020 and $29.07 in 2021.
According to sources from EPRA, after the implementation of the revised pipeline tariffs, the export volumes have doubled in the last ten days.
Kenya Pipeline Company (KPC), has however expressed concerns about the reduction, saying that it will have a negative impact on its bottom line. The company has amassed huge debts to finance infrastructure investments including the new Mombasa-Nairobi pipeline constructed at a cost of $473.4 million, and the four new oil storage tanks in Nairobi that cost $50 million. Economic Survey 2019 reported that Kenya’s volume of petroleum exports dropped to 739.800 tonnes in 2018, from 842.400 tonnes in 2017.
