Energy sector liberalization in Kenya: critical policy issues in petroleum retail market

Abstract

This paper reviews and analyzes policy and environment and issues surrounding emerging liberalized petroleum sub-sector in Kenya. It covers those areas relating to pricing, taxation and investment within the country’s petroleum retail market. The underlying premise is that due to the fuel price and supply liberalization which have taken place within the sub-sector as part of macro-economic and structural policy reforms which the Kenyan Government has continued to deepen and consolidate, the emerging environment and relations linked to the sub-sector will necessarily call for developments of new policy strategies in order to provide stimulus for growth and new investment. In response, the economic operators will also be expected to evolve business management strategies and investment scenarios consistent with this new operating environment. However, it is found that there is lack of a sound knowledge base which can facilitate formulation of policies and institutional frameworks appropriate to the emerging market regime. Therefore, it is the objective of this paper to generate such knowledge. The paper finds that consumer prices and the concomitant profit margin setting arrangement have not changed significantly; price leadership remains the practice with the government’s regulatory capacity being weak; product taxes remain high and discriminatory; the market concentration remains moderately high; and considerable potential for access to both domestic and foreign capitals exists.