He does not know me but he [or his handlers] have responded to some of my Tweets & that has encouraged me to write another blog post. This does not mean I support his political views but he has done OK, in my book, as far as Kenya's economy is concerned. I was an idealist when I was younger but have grown pragmatic as concerns the rate of (good) change in how Kenya does business. Let's be clear, Kenya has very far to go before meaningful comparisons to Singapore can be objectively made.
Of course, this is a basic outline of what Kenya can do but I hope its a start when riots in some far-flung country don't affect me as much. Nevertheless, Kenya is not an island in the global environment.
[BTW, President Paul Kagame of Rwanda (@paulkagame) is on Twitter too & has personally replied to me. ;-) ]
Kenya's Fuel (Petroleum) Crisis(es)
Volatility of Prices - Kenyans are being disingenuous in apportioning blame when Kenya experiences huge variances in fuel prices. The volatility of oil prices can be blamed on lots of factors but Oil (crude) is heavily traded on the global market & Kenya has no petroleum deposits to speak of to fll back on. Hopefully, we strike some hydrocarbon deposits, soon.
1) Kenya [as a country] enters into Derivatives that 'set' a base price. Not a cheap option since Derivatives cost Premiums/Payments [aka Money]. The gain/loss from derivatives can be used to 'stabilize' the price. Of course, as KQ knows, they can also hurt when prices fall.
- Derivatives require Premiums or Cash Payments/Receipts depending on the type, strike price, etc. Lots of options. Lots of calculations. Lots of sharks.
- Hedging is complex & generally works better if you are a Seller of the Product e.g. if Angola knows how much oil it can produce, it can sell it 'forward' through Derivatives or Forwards so it knows how much it will earn in a fiscal period.
2) Bilateral agreements that allow lifting of Crude at discounts to Market or Fixed Prices. Helps Kenya but there is a price to pay as well since Bilateral Agreements always involve Quid Pro Quos.
- What can Kenya offer the Middle East countries? Support at the UN, no matter what? Food security? What? [In essence, very little]
- Kenya may enter into untenable agreements which will bite back when the chips are down. I remain wary of these bilateral agreements. Iran offered Kenya a deal but the conditions might be onerous.
- That said, there is Southern Sudan. Kenya can promise (& deliver) a refinery &/or pipeline to SS to move oil 'south' thus reducing SS dependence on the North. In exchange, there is a commercial 'payment' in oil e.g. Kenya moves 100 barrels to Lamu in exchange for 5 barrels.
- Uganda plans to build a refinery but needs to 'sell' its refined products. How about a long-term agreement with them?
Huge Import Bill [& need for forex] for fuel. Not an easy one to tackle since Kenya imports 100% of its petroleum requirements.
1) Reduce the use of Oil/Capita. Not easy as we 'expand' our economy. Nevertheless, improving the roads, cutting down on 'poor' driving habits e.g. matatu-style driving will save Kenya a huge percentage of WASTED fuel.
- Traffic is horrendous in Nairobi (other urban centers too) partly due to a poor road network. Well, improve it by building more roads. We need them as the country expands. Nevertheless, this costs money & therein lies the rub. Are Kenyans ready for 'efficient' toll roads?
- Public Transport - This is critical. Look at New York or London where buses & trains are the primary mode of transport. I do not mean matatus but I mean decent & reliable BUSES & a train system. Singapore & Bangkok have relatively new (& efficient) Urban Rail Systems. Let's look to India [Dehli Metro] & South Africa [Gautrain] as examples of what can be done in the 3rd World & African scenarios.
- Devolution - The private sector is already devolving out of the CBD. Financial Institutions' HQs have moved to Upper Hill but banks have branches & ATMs everywhere else. It is time for GoK to do its part. Move 'out' of CBD to an efficient purpose built 'city' served by rail, airport & roads. Also devolve functions as well as continue going online.
- Singapore contemplated moving government functions OUT of the city centre to enable 'release' of prime property to private entities & reduce traffic into the city for government services. Add new & better designed buildings for efficiency.
2) Bio-fuels - Forget the naysayers. There are lots of advantages to UNSUBSIDIZED bio-fuels. Let us choose those that make sense. Some will work, others will fail. Let's not be afraid of failures as long as the process is transparent & we learn from it.
- Ethanol - Kenya can dramatically increase ethanol production by using sugarcane waste/baggasse as feedstock. Mumias is putting in an ethanol plant. What is required is a minimum payment that encourages Mumias/Sugar Firms to install the conversion plants & provides an incentive for continued production. We need to return to ethanol blending or UNTAXED 85-100% ethanol fuel.
- Bio-fuels can also be produced by using other feedstock including certain fast-growing grasses. I am not saying we use 'food' crops for bio-fuels but marginal lands for dedicated bio-fuel crops.
- Many researchers in the USA are working on bio-fuels from algae, switchgrass, etc. We need to do the same. What can we grow in our semi-arid areas (with limited water requirements) that can be used to produce Bio-Fuels?
Increasing Consumption of Imported Fuels
1) Population Control - Why do folks think Kenya can keep on feeding more folks? We need to improve QUALITY of life. I say max of 3 kids. Any more then off to the sterilization table. I am NOT advocating China-style policies.
- We can increase per capita energy use without increasing our total import fuel bill. There is always a minimum requirement per kid/person. So more people means more fuel is required to maintain the standard of living.
Taxes on Fuel
1) Taxes - Taxation of fuel in Kenya needs to be harmonized for efficiency & to prevent adulteration not for populism.
- Kenya's government needs to be more efficient but the taxes are here to stay. They should be reasonable so as to make smuggling & adulteration insignificant.
- Taxing kerosene at low rates to shield Wanjiku leads to adulteration of diesel. The chemical & physical characteristics of diesel & kerosene allow 'mixing' to the detriment of users of diesel. As for Wanjiku, she needs to understand (4) helps lower her bills.
- Diesel is 'dirtier' than petrol but has enjoyed popularity since it was taxed at a lower rate than petrol. There are other reasons diesel is preferred for certain applications like 'safari' vans, etc.
- GoK needs to shift to 'green' vehicles as a matter of public policy. This gives a boost to local bio-fuels. Ethanol-only cars can fill up at any fuel station obviating the need to manage VAT/refund paperwork for GoK or exempt organizations.
2) Revenue - GoK still needs revenues but these can be recovered from indirect taxes (vs tax on biofuels) on fuel stations, wages, land rates, income taxes, etc i.e. other economic activities generated by bio-fuel production.
- What of adulteration of petrol/diesel using biofuels? Well, currently biofuels are pricier than 'petroleum' [if no taxes are applied] & this will somewhat help.
- Enforce laws against adulteration. Heavy fines & jail terms. Easier said than done in our current system of goverment & judiciary.
- Taxes are here to stay but can we increase the production & use of LOCAL fuels that encourage other economic activities?