Over the past two years, Kenya’s fuel pricing structure has undergone a series of notable shifts, with each one quietly adding weight to the final pump price. It began with the doubling of VAT rate from 8% to 16% in the July 2023 pricing cycle. Then came the tripling of the EPRA Levy from Ksh 0.25 to Ksh 0.75 per liter in February 2024. By August 2024, the Road Maintenance Levy had climbed from Ksh 18 to Ksh 25.
During the March 2025 cycle, yet another component was revised: the operating margins for oil marketers. The margin for Super Petrol rose from Ksh 12.39 to Ksh 15.24 per litter in that cycle. Similar, albeit slightly smaller, increases were made for Diesel and Kerosene.
These incremental adjustments, are shaping a new normal in Kenya’s fuel pricing and deserve a closer look. This means that, all else being equal, the price of a litre of petroleum product has risen by a fixed amount of approximately Ksh 12 per liter over the past two years as shown in Table 1 below.
This blog piece focuses on the operating margins. These are not market determined prices or taxes. They are fixed payments that are set by the regulator ostensibly meant to keep the fuel supply system running and attractive for investment. Think of them as the cover charge for doing business in Kenya’s fuel sector.
There are two main types:
In the March 2025 pricing cycle (effective from April), OMC margins quietly increased across all fuel types. As shown in Table 2, the OMC margin for Super Petrol rose by Ksh 2.85, while Diesel and Kerosene margins increased by Ksh 2.88. Although these increments may appear modest, their share of the final pump price grew significantly, particularly for Kerosene, where it now accounts for just over 10%.
And this may not be the end of the adjustments. In a recent roundtable with EPRA, officials referenced findings from Kenya’s second Cost of Service Study for Petroleum. Although EPRA did not share the full report and it is not publicly available, the presentation indicated that the combined retail margins should be Ksh 12.78, up from the the-official figure of Ksh 8.19.
Now, Cost of Service Studies often aim to determine what margin level allows firms to cover their operating and capital costs while earning a reasonable return. These studies typically account for distribution costs, infrastructure investments, financing, and inflationary pressures.
EPRA carries out these studies regularly in the electricity and petroleum sub-sectors intended to analyse value chain elements applied in the calculation of tariffs, network costs and pump prices. The second COSSOP had three objectives, two of which seem to be applicable to the petroleum industry.
The first was to examine the existing petroleum pump pricing formula and all adjustable parameters, assess their adequacy and accuracy. Second, reassess key variables in the formula to capture prudently incurred costs in the value chain from importation to distribution and retailing of products.
However, the accuracy of the estimates depends heavily on the assumptions and inputs used especially when key data comes from industry players. In this case, it is likely that oil marketers themselves were key informants in determining the underlying cost structures. Naturally, these firms have a strong incentive to overstate costs or understate efficiencies to justify higher margins, particularly in a regulated pricing environment where profits are capped. This introduces a classic principal-agent problem: regulators (the principals) must rely on information from firms (the agents), whose interests may not align with those of consumers or fiscal policy.
Absent any independently verification, such inputs risk entrenching inflated margins under the guise of cost recovery. The upward revision to Ksh 12.78, therefore, should be viewed with suspicion particularly in a context where fuel affordability has direct implications for transport, inflation, and household welfare.
On the wholesale side, the Cost of Service Study recommended raising the margin from Ksh 3.05 to Ksh 4.69. However, a closer look at EPRA’s own monthly price reviews reveals a discrepancy: the wholesale margin had already moved well beyond Ksh 3.05. In fact, it stood at Ksh 4.20 prior to the latest adjustment, and rose further to Ksh 5.52 in the March 2025 pricing cycle.
This raises important questions about the baseline used in the study versus what was actually being applied in practice. It’s unclear whether the Ksh 3.05 referenced in the study was outdated, theoretical, or simply a regulatory benchmark that had already been exceeded informally. Regardless of the explanation, the underlying trend is clear, margins, and therefore pump prices, are on an upward trajectory.
EPRA has also indicated that it will phase in the recommended increases in three stages, suggesting that further increments are likely in the coming months. This points to a structural shift toward higher wholesale and retail cost components embedded in fuel pricing going forward.
Guaranteed Profits?
Operating margins are supposed to reflect the real costs of doing business. In theory, they ensure that retailers and wholesalers can stay afloat and continue investing in infrastructure. But when these margins are adjusted through regulation rather than competition, we need to ask a basic economic question: Are we pricing efficiency, or merely protecting incumbents?
This creates fertile ground for rent-seeking behavior, where firms use regulatory channels to secure guaranteed profits rather than improving efficiency or service. Over time, such structures risk entrenching market power, especially in a sector where entry barriers like capital requirements, storage infrastructure, and regulatory licenses are already high.
Kenya’s fuel sector is far from a textbook competitive market. A handful of large players dominate fuel imports, and the retail space is increasingly consolidated under major brands. In such a market, fixed and rising margins especially when upward revisions happen without transparent scrutiny begin to resemble cost-plus regulation. This is a pricing model often used in public utilities, where firms are allowed to recover operating costs plus a guaranteed margin of profit.
Why does this matter? Because when a regulator like EPRA steps in to guarantee a minimum return, regardless of global price swings, taxes, or exchange rate volatility, it signals a shift: from market-based risk to state-backed profit. Such intervention is unjustified, as government policy should be firm-agnostic, focused on ensuring competitive markets and consumer welfare, rather than guaranteeing the survival of any single enterprise even though government claims that they do so in order to prevent oil marketers from exiting the market and causing a supply crisis.
What’s missing is transparency in this process. EPRA has previously cited a second Cost of Service Study as the basis for the margin adjustments. Yet, efforts to find this document in the public domain yield nothing. If the rationale behind these price settings is grounded in technical evidence, why isn’t it accessible for scrutiny?
This creates a classic case of asymmetric information. The regulator has access to detailed cost structures from industry players, while the public does not yet they bear the costs. Without published data, citizens and consumer watchdogs are unable to verify whether these costs are efficient or inflated, reducing accountability in public pricing.
When margin revisions go beyond cost recovery and start functioning as a silent policy tool to ensure industry stability, we’ve effectively crossed into subsidy territory. A technocratic subsidy, yes but a subsidy nonetheless.
Conclusion
In a sector as essential as petroleum fuel, margins aren’t just a supply issue they’re a public interest issue. Whether it’s framed as cost recovery or industry stabilization, the quiet upward revision of operating margins affects every Kenyan who boards a matatu or buys goods transported by road. Because we know that profit is guaranteed by design, then transparency cannot be optional.
EPRA should publish the full Cost of Service Study and clearly explain the rationale behind the phased margin revisions. Implementation has already begun, yet the public remains in the dark about the assumptions, data sources, and stakeholder inputs used in the study. At a minimum, such significant pricing shifts should be subject to public consultation, much like the process followed for electricity tariff reviews.
That said, a more economically sound approach would be to abandon the pretense of price-setting altogether. Rather than entrenching administrative pricing based on opaque cost studies, often informed by industry players with a vested interest, Kenya would be better served by restoring competition in the petroleum products market. Competitive pricing, not centrally-determined margins, is what drives efficiency and ultimately protects consumers from unjustified cost escalations.
Kenya has benefited from its relations with the world. Multilateral, plurilateral or bilateral relationships with other countries has increased Kenyan firms and individuals market access, peace cooperations, import sources and aid. Kenya has trade relations with the United State of America and the Islamic Republic of Iran. One of the most consequential relationships between the […]
The National Infrastructure Fund Act (No. 4 of 2026) took effect on 25 March 2026 with a headline financing target: to raise about Ksh 5 trillion over ten years for highways, railways, ports, energy, information and communications technology, water and irrigation. The plan works like this. Privatization proceeds become the Fund’s starting capital. That capital […]
Introduction The matatu metaphor can be used to analytically frame Kenya’s budget as a system that is subject to binding constraints, evolving expectations, and continuous adjustment to shocks. Like the matatu sector, fiscal policy reflects a balancing act between efficiency and quick action seeking to respond to public service delivery while constrained by competing sector […]
Introduction Imagine paying the same fare to travel at 6 a.m. as you would at 6 p.m., even though the matatu is half-empty in the morning and packed in the evening. At 6 a.m., there may be more seats available than passengers willing to pay for them. By 6 p.m., the situation is reversed. Hundreds […]
Absurd hypotheticals are useful precisely because they stress-test a system until its constraints become visible. This note asks what would break first if SpaceX, now a public company following its record-breaking Nasdaq debut in June 2026, with a post-IPO market value of approximately US$ 2.5 trillion, sought a secondary cross-listing on the Nairobi Securities Exchange. […]
| Post date: Mon, Jul 14, 2025 |
| Category: Energy |
| By: Fiona Okadia, |
Over the past two years, Kenya’s fuel pricing structure has undergone a series of notable shifts, with each one quietly adding weight to the final pump price. It began with the doubling of VAT rate from 8% to 16% in the July 2023 pricing cycle. Then came the tripling of the EPRA Levy from Ksh 0.25 to Ksh 0.75 per liter in February 2024. By August 2024, the Road Maintenance Levy had climbed from Ksh 18 to Ksh 25.
During the March 2025 cycle, yet another component was revised: the operating margins for oil marketers. The margin for Super Petrol rose from Ksh 12.39 to Ksh 15.24 per litter in that cycle. Similar, albeit slightly smaller, increases were made for Diesel and Kerosene.
These incremental adjustments, are shaping a new normal in Kenya’s fuel pricing and deserve a closer look. This means that, all else being equal, the price of a litre of petroleum product has risen by a fixed amount of approximately Ksh 12 per liter over the past two years as shown in Table 1 below.
This blog piece focuses on the operating margins. These are not market determined prices or taxes. They are fixed payments that are set by the regulator ostensibly meant to keep the fuel supply system running and attractive for investment. Think of them as the cover charge for doing business in Kenya’s fuel sector.
There are two main types:
In the March 2025 pricing cycle (effective from April), OMC margins quietly increased across all fuel types. As shown in Table 2, the OMC margin for Super Petrol rose by Ksh 2.85, while Diesel and Kerosene margins increased by Ksh 2.88. Although these increments may appear modest, their share of the final pump price grew significantly, particularly for Kerosene, where it now accounts for just over 10%.
And this may not be the end of the adjustments. In a recent roundtable with EPRA, officials referenced findings from Kenya’s second Cost of Service Study for Petroleum. Although EPRA did not share the full report and it is not publicly available, the presentation indicated that the combined retail margins should be Ksh 12.78, up from the the-official figure of Ksh 8.19.
Now, Cost of Service Studies often aim to determine what margin level allows firms to cover their operating and capital costs while earning a reasonable return. These studies typically account for distribution costs, infrastructure investments, financing, and inflationary pressures.
EPRA carries out these studies regularly in the electricity and petroleum sub-sectors intended to analyse value chain elements applied in the calculation of tariffs, network costs and pump prices. The second COSSOP had three objectives, two of which seem to be applicable to the petroleum industry.
The first was to examine the existing petroleum pump pricing formula and all adjustable parameters, assess their adequacy and accuracy. Second, reassess key variables in the formula to capture prudently incurred costs in the value chain from importation to distribution and retailing of products.
However, the accuracy of the estimates depends heavily on the assumptions and inputs used especially when key data comes from industry players. In this case, it is likely that oil marketers themselves were key informants in determining the underlying cost structures. Naturally, these firms have a strong incentive to overstate costs or understate efficiencies to justify higher margins, particularly in a regulated pricing environment where profits are capped. This introduces a classic principal-agent problem: regulators (the principals) must rely on information from firms (the agents), whose interests may not align with those of consumers or fiscal policy.
Absent any independently verification, such inputs risk entrenching inflated margins under the guise of cost recovery. The upward revision to Ksh 12.78, therefore, should be viewed with suspicion particularly in a context where fuel affordability has direct implications for transport, inflation, and household welfare.
On the wholesale side, the Cost of Service Study recommended raising the margin from Ksh 3.05 to Ksh 4.69. However, a closer look at EPRA’s own monthly price reviews reveals a discrepancy: the wholesale margin had already moved well beyond Ksh 3.05. In fact, it stood at Ksh 4.20 prior to the latest adjustment, and rose further to Ksh 5.52 in the March 2025 pricing cycle.
This raises important questions about the baseline used in the study versus what was actually being applied in practice. It’s unclear whether the Ksh 3.05 referenced in the study was outdated, theoretical, or simply a regulatory benchmark that had already been exceeded informally. Regardless of the explanation, the underlying trend is clear, margins, and therefore pump prices, are on an upward trajectory.
EPRA has also indicated that it will phase in the recommended increases in three stages, suggesting that further increments are likely in the coming months. This points to a structural shift toward higher wholesale and retail cost components embedded in fuel pricing going forward.
Guaranteed Profits?
Operating margins are supposed to reflect the real costs of doing business. In theory, they ensure that retailers and wholesalers can stay afloat and continue investing in infrastructure. But when these margins are adjusted through regulation rather than competition, we need to ask a basic economic question: Are we pricing efficiency, or merely protecting incumbents?
This creates fertile ground for rent-seeking behavior, where firms use regulatory channels to secure guaranteed profits rather than improving efficiency or service. Over time, such structures risk entrenching market power, especially in a sector where entry barriers like capital requirements, storage infrastructure, and regulatory licenses are already high.
Kenya’s fuel sector is far from a textbook competitive market. A handful of large players dominate fuel imports, and the retail space is increasingly consolidated under major brands. In such a market, fixed and rising margins especially when upward revisions happen without transparent scrutiny begin to resemble cost-plus regulation. This is a pricing model often used in public utilities, where firms are allowed to recover operating costs plus a guaranteed margin of profit.
Why does this matter? Because when a regulator like EPRA steps in to guarantee a minimum return, regardless of global price swings, taxes, or exchange rate volatility, it signals a shift: from market-based risk to state-backed profit. Such intervention is unjustified, as government policy should be firm-agnostic, focused on ensuring competitive markets and consumer welfare, rather than guaranteeing the survival of any single enterprise even though government claims that they do so in order to prevent oil marketers from exiting the market and causing a supply crisis.
What’s missing is transparency in this process. EPRA has previously cited a second Cost of Service Study as the basis for the margin adjustments. Yet, efforts to find this document in the public domain yield nothing. If the rationale behind these price settings is grounded in technical evidence, why isn’t it accessible for scrutiny?
This creates a classic case of asymmetric information. The regulator has access to detailed cost structures from industry players, while the public does not yet they bear the costs. Without published data, citizens and consumer watchdogs are unable to verify whether these costs are efficient or inflated, reducing accountability in public pricing.
When margin revisions go beyond cost recovery and start functioning as a silent policy tool to ensure industry stability, we’ve effectively crossed into subsidy territory. A technocratic subsidy, yes but a subsidy nonetheless.
Conclusion
In a sector as essential as petroleum fuel, margins aren’t just a supply issue they’re a public interest issue. Whether it’s framed as cost recovery or industry stabilization, the quiet upward revision of operating margins affects every Kenyan who boards a matatu or buys goods transported by road. Because we know that profit is guaranteed by design, then transparency cannot be optional.
EPRA should publish the full Cost of Service Study and clearly explain the rationale behind the phased margin revisions. Implementation has already begun, yet the public remains in the dark about the assumptions, data sources, and stakeholder inputs used in the study. At a minimum, such significant pricing shifts should be subject to public consultation, much like the process followed for electricity tariff reviews.
That said, a more economically sound approach would be to abandon the pretense of price-setting altogether. Rather than entrenching administrative pricing based on opaque cost studies, often informed by industry players with a vested interest, Kenya would be better served by restoring competition in the petroleum products market. Competitive pricing, not centrally-determined margins, is what drives efficiency and ultimately protects consumers from unjustified cost escalations.
Kenya has benefited from its relations with the world. Multilateral, plurilateral or bilateral relationships with other countries has increased Kenyan firms and individuals market access, peace cooperations, import sources and aid. Kenya has trade relations with the United State of America and the Islamic Republic of Iran. One of the most consequential relationships between the […]
The National Infrastructure Fund Act (No. 4 of 2026) took effect on 25 March 2026 with a headline financing target: to raise about Ksh 5 trillion over ten years for highways, railways, ports, energy, information and communications technology, water and irrigation. The plan works like this. Privatization proceeds become the Fund’s starting capital. That capital […]
Introduction The matatu metaphor can be used to analytically frame Kenya’s budget as a system that is subject to binding constraints, evolving expectations, and continuous adjustment to shocks. Like the matatu sector, fiscal policy reflects a balancing act between efficiency and quick action seeking to respond to public service delivery while constrained by competing sector […]
Introduction Imagine paying the same fare to travel at 6 a.m. as you would at 6 p.m., even though the matatu is half-empty in the morning and packed in the evening. At 6 a.m., there may be more seats available than passengers willing to pay for them. By 6 p.m., the situation is reversed. Hundreds […]
Absurd hypotheticals are useful precisely because they stress-test a system until its constraints become visible. This note asks what would break first if SpaceX, now a public company following its record-breaking Nasdaq debut in June 2026, with a post-IPO market value of approximately US$ 2.5 trillion, sought a secondary cross-listing on the Nairobi Securities Exchange. […]