Petroleum industry since liberalization

Petroleum industry since liberalization

The petroleum industry in Kenya: historical perspectives and future policy dilemmas

This article discusses the incomplete nature of liberalisation of the petroleum industry in Kenya.

Concludes that:

  • The shortages in petroleum products that was common before the period of price decontrols are now non existent
  • The liberalization process has however been incomplete leaving the National Oil Corporation Of Kenya (NOCK) as both national regulator and active participant in the market

Policy Recommendations:

  • It is imperative at a policy level, that the heavy and unsustainable negative effect of the continued use of wood as a principal energy source is reduced
  • The use of Liquefied Petroleum Gas (LPG) rather than kerosene should be encouraged as kerosene may cause serious injury and accidents. The satisfaction of this demand depends on the availability of an import handling and loading facility at the port in Mombassa
  • Government should moderate tax on equipment for LPGs such as cookers and gas cylinders
  • Competition between the LPG subsector of the petroleum industry should be encouraged. At the moment each company compels consumers to purchase a separate valve for gas cylinders, thus encouraging competitors to suggest that their products are different, stopping consumer comparison. Government regulation imposing product standardisation and hence competition would increase household LPG use
  • It is imperative that that the regulatory functions of the National Oil Corporation of Kenya be disarticulated from its marketing functions. This could be achieved by the privatisation of the marketing facilities of the corporation, thereby separating completely its anomalous dual role
  • The regulatory authority, that will emerge from the disarticulation of the incompatible role now performed by the National Oil Corporation of Kenya, must concentrate on promoting competition within the industry. An impartial market regulator will have have to examine the veracity of the claim that some players in the market engage in oligopolistic behavior. As soon as the independent regulatory authority is in place it will have to set standards of conduct within the market in conjunction with the players
  • While the liberalization was expected to translate into lower prices through competition, this has not been so, due to the high taxes levied on petroleum products by the government. As a policy measure, government preoccupation with revenue generation is not progressive because the tax must pass on to the consumer with the result that inflation occurs. Government reliance on petroleum products for tax revenues must be reduced substantially through the realisation that the present levels of tax do hinder consumption. Similarly tax policy on other equipment that facilitates the use of LPG must be examined in terms of long term economic good that would inhere from the increased affordability of and use of efficient goods
  • A competent regulator is required to ensure the desired competitve environment in the petroleum sector

[Author]

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