Pipeline tariff hike hands KPC extra Sh1b revenue

A recent increase in the pipeline tariff is expected to generate an additional Sh1 billion in revenues for the Kenya Pipeline Company (KPC) over the current financial year.

The Energy and Petroleum Regulatory Authority (Epra) raised the cost of transporting petroleum products through KPC’s pipeline network this month. It is among the factors that have offset the effect of lower landed costs that would have led to a drop in retail fuel prices by a big margin.

The cost of transporting petroleum products from Mombasa to Nairobi went up, albeit marginally, to Sh2.79 per litre and resulted in the total storage and distribution costs going up to Sh4.09 a litre in July from Sh3.94 in June. 

This has gone up from Sh3.44 a litre in October 2022 when Epra started implementing a new multi-year pipeline tariff. The overall impact is an increase of 15 cents per litre for the storage and distribution cost, which is factored in pump prices.

While the increase per litre is marginal, it is a boost for KPC, which moves billions of litres of fuel per year using the Mombasa-Nairobi pipeline. 

KPC, which transfers refined petroleum products for oil marketers, transported eight billion litres of petroleum products through the pipeline, meaning a 15-cent hike on the tariff could shore up its revenues by Sh1.2 billion.

“The new pipeline tariff effective July 14, 2024 increased from Sh2,582.72 per cubic metre to Sh2,791.85 per cubic metre. This represents an increase of Sh209.13 per cubic metre (or Sh.0.21 per litre),” said Epra.

“The Authority also factors in the actual loss factor in the computation of storage and pipeline cost, the loss factor in the period under review went down from 0.04 per cent to 0.01 per cent representing a saving of Sh0.06 per litre. The overall change in the pipeline transport is, therefore, Sh0.15 per litre.”

The higher pipeline transportation fee was in addition to an increase in the Road Maintenance Levy, which shot up 39 per cent to Sh25 per litre from Sh18.

The Road Maintenance Levy, which also rose when Epra announced maximum pump prices for the July-August pricing cycle last week, has caused an uproar, with different industries and even motorists noting that it is ill-timed and is also against overwhelming rejection during the public participation phase as the government sought views on increasing the levy.

The increase in the two components did not immediately result in higher pump prices. This was partly due to a drop in the cost of products, with the landed cost reducing to Sh92.97 per litre of petrol from Sh100.30 in June.

The landed price for diesel, which is the cost of products when they get to Mombasa before the application of taxes, levies and oil dealer margins, dropped to Sh88.38 in July from Sh92.43 in June.

Road levy

Pump prices remained largely unaffected by the higher road levy and pipeline tariff as the government applied a subsidy of Sh3.35 per litre of petrol and Sh2.50 per litre of diesel. 

Following the implementation of the new tariff, KPC is set to earn about Sh1.2 billion in additional revenues going by the amount of petroleum products it moved through its network of pipelines.

The pipeline company moved 8.15 billion litres of fuel last year, according to data by the Kenya National Bureau of Statistics (Knbs), which was a 7.9 per cent increase from 7.55 billion litres in 2022. Over 80 per cent of the money collected through the transport and storage fee is remitted to KPC, whose network of pipelines and depots is used to transport and store petroleum products.

Other than the pipeline transport fee, other fees under the transport and storage category include money used to cater for pipeline losses and depot losses—which also go to KPC—as well as the cost of transporting fuel to petrol stations, which is passed on to road transporters.

Epra in October 2022 approved a new pipeline tariff for the three years to June 2025 and noted that in subsequent years, the tariff prescribes new charges every year that come into effect every July.

In the process of developing a new tariff in 2022, KPC had earlier defended its proposal to raise the pipeline tariff and noted that it needed to boost its revenue base and upgrade its infrastructure to enhance efficiency.

In addition to maintenance of infrastructure, KPC had noted that a higher tariff would enable it to construct a new pipeline from Mombasa to Nairobi, to enhance efficiency in the supply of the essential commodity and meet increasing demand in the local and regional markets.

KPC is among the profitable State-owned entities and recently paid a dividend of Sh5 billion to the National Treasury. The dividend payment, the firm said at the time, follows a 21 per cent increment in KPC’s profitability to Sh7.6 billion in the financial year 2022/2023 compared to Sh6.3 billion the previous year.