New petroleum taxes, levies bill is not necessary

Chairperson of the Finance and Planning committee of the National Assembly Gladys Wanga. PHOTO | POOL

By GEORGE WACHIRA
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Summary

• The Petroleum Act 2019, which was passed by the current parliament, empowers the Cabinet Secretary to formulate petroleum policies and set up regulations.
• Petroleum Pricing Regulations 2010 have already been updated by Energy & Petroleum Regulatory Authority (EPRA), including public participation.
• The Petroleum Development Levy Act 1993 may have caused the recent pricing confusion when the law was hurriedly used to justify an additional Sh5 per litre levy for “price stabilization”.

In October Gladys Wanga, the chairperson of the parliamentary Finance Committee published the Petroleum Products Taxes & Levies Bill 2021 which intends to have all taxes and levies on petroleum approved by Parliament.

While acknowledging public concerns on the current high oil prices, I consider the Wanga Bill unnecessary as it duplicates mandates of other existing Acts.

Various Finance Bills provide processes for reviewing and approving taxes and levies intended for exchequer revenues from petroleum products and indeed all other goods and services. It is also safe to assume that the Finance Committee fully participated in the review of all these taxes and levies.

Further, the Petroleum Act 2019, which was passed by the current parliament, empowers the Cabinet Secretary to formulate petroleum policies and set up regulations.

Specifically, the petroleum pricing regulations pass through to consumers all taxes and levies approved by various Finance Bills, in addition to reviewing all petroleum supply chain costs and investor margins for monthly retail price build-up. This also includes any other levy supported by the Petroleum Act.

Indeed, the Petroleum Pricing Regulations 2010 have already been updated by Energy & Petroleum Regulatory Authority (EPRA), including public participation. The parliamentary Finance Committee may wish to view these draft pricing regulations, including a supply chain cost benchmarking study that advised the latest changes to the pricing formula.

However, I share concerns implied in the Wanga Bill in respect of the Petroleum Development Levy Act 1993 which has for many years collected Sh0.40 per litre petroleum development levy. This law has been mostly dormant since it was published in the early 1990s, and I am not sure why it was not repealed, and its policy intentions included in the umbrella Petroleum Act 2019.

The “development” policy intentions and justifications may need revisiting to align with the latest PPP development model in a liberated petroleum market.

The Petroleum Development Levy Act 1993 may have caused the recent pricing confusion when the law was hurriedly used to justify an additional Sh5 per litre levy for “price stabilization”. The legality of this action by the Petroleum ministry may be what triggered the Wanga Bill by the legislators.

A further mistake by the petroleum ministry was to denote price stabilisation as “ price subsidisation”, a fiscal and political misadventure and risk. The world is running away from price subsidies of whatever kind.

Price stabilisation can be achieved by the current Petroleum Act 2019 which has a provision for Petroleum Consolidated Fund to specifically finance strategic petroleum stocks.

Strategic stocks assure the security of supply and can be simultaneously used to stabilise consumer oil prices when oil commodity markets are volatile. A smartly implemented strategic stocks programme will stock products when global prices are low and release them to consumers when prices are high.

This is all that Kenya needs to do to stabilise prices, which is what Rwanda has implemented.

EPRA should draft a regulation to operationalise the Petroleum Consolidated Fund under Petroleum Act 2019, and correctly introduce a Strategic Stocks Levy, which can be the Sh5 per litre, or a much reduced but justified figure, to be correctly labelled petroleum strategic stocks levy.

This may end the regulatory confusion that prompted the Parliamentary committee to go for their new Bill.

The policy justification for Petroleum Development Levy Act 1993 can be revisited, and if found to be relevant, included in an amended Petroleum Act.

In drafting the Wanga Bill, the Energy Act 2019 has been wrongly referenced as it has nothing to do with Petroleum, except that it mandates and administratively domiciles EPRA under CS for Energy. Otherwise, EPRA regulates both petroleum and other forms of energy under both Petroleum Act 2019 and Energy Act 2019.

In summary, the current Petroleum Pricing Regulations and its monthly price formula are sound and fair retail pricing systems which should be supported and regularly reviewed and updated.

They are transparent, predictable, timely, and are considered fair to all supply chain stakeholders including consumers and investors. There appears to be no compelling need for another law to steward petroleum prices and levies.