The Consumers Federation of Kenya (COFEK) has officially challenged the Energy and Petroleum Regulatory Authority (EPRA) over a newly proposed compensation framework that promises an additional Sh11 per litre to Oil Marketing Companies (OMCs) for fuel volumes imported during the March pricing cycle. In a formal letter addressed to the Energy Cabinet Secretary Opiyo Wandayi, the consumer lobby has sounded the alarm, characterizing the move as a potential breach of statutory mandates and a veiled effort to subsidize private sector interests at the expense of an already overtaxed public.

This development marks a significant escalation in the ongoing tension between energy sector regulators and consumer watchdogs, coming at a time when Kenya is grappling with the peripheral economic shocks of escalating Middle East instability. By scrutinizing the legal architecture underpinning these payments, COFEK is effectively questioning whether the regulator has exceeded its legislative authority, potentially exposing taxpayers to billions of shillings in liability without the requisite parliamentary oversight.

An Anatomy of the Compensation Framework

At the heart of the dispute is the proposed mechanism to pay OMCs an additional Sh11 per litre of petroleum products. This compensation, according to the regulator, is intended to account for excess volumes imported during the current pricing cycle—a move triggered by the recent volatility in international crude oil markets. However, critics argue that this compensation structure lacks transparency and fails to account for the actual landed cost of the fuel, thereby risking an artificial inflation of pump prices.

The consumer federation has been particularly vocal about the exclusion of critical stakeholders from this compensation architecture. According to the lobby, while the regulatory framework is designed to manage market stability, the current approach appears to prioritize the interests of upstream players, namely the OMCs, while leaving retailers and end-consumers to absorb the volatility. The primary concerns raised by the federation include the following:

• Lack of Stakeholder Participation: The decision-making process for the compensation appears to have occurred behind closed doors, excluding consumer representatives and industry retail bodies.
• Potential Legal Non-Compliance: COFEK argues that the compensation scheme may infringe upon the Energy Act 2019, which mandates that the regulator must balance industry stability with the economic protection of the Kenyan citizen.
• Public Finance Management Risks: The federation has flagged potential violations of the Public Finance Management Act 2012, asserting that any compensation involving public levies must be subjected to rigorous parliamentary review and approval.
• The Risk of Windfall Profits: Without strictly enforced conditions, the lobby warns that this compensation could become an unjustified private sector windfall if it is not explicitly tied to preventing cost pass-throughs to the consumer.

The Regulatory Tightrope

EPRA, under the leadership of Director General Daniel Kiptoo, has long navigated a delicate balancing act. The regulator is tasked with ensuring fuel security in a nation that relies almost entirely on imported, refined petroleum products. However, the recurring challenge of compensating OMCs—a legacy issue that has historically triggered fuel shortages when payments are delayed—continues to haunt the sector. In past years, failure to settle these claims has led to hoarding, as marketers held back stock to force government payments.

Legal analysts suggest that this latest challenge by COFEK is not merely about the Sh11 per litre figure it is a fundamental challenge to the discretionary power of the regulator. The Energy Act 2019 provides a framework for pricing, but the grey areas surrounding “compensatory mandates” have frequently been exploited. If the courts find that the regulator has usurped a mandate it does not explicitly hold, the implications for the government’s fuel importation strategy could be severe, potentially forcing a total overhaul of the current stabilization mechanisms.

Voices From the Frontline

For the average Kenyan, the technicalities of fuel compensation are secondary to the immediate, tangible impact on their pockets. Transport costs remain the primary driver of inflation in the country, and any adjustment to the pricing formula—whether direct or indirect—ripples instantly through the cost of food, public transport, and manufacturing. A motorcycle taxi operator in Nairobi’s Central Business District noted that while he does not understand the complexities of the “compensation plan,” he understands that any increase in pump prices, or the maintenance of high prices, threatens his daily survival.

Economists at the University of Nairobi have previously observed that Kenya’s fuel demand is remarkably inelastic consumers cannot easily opt out of purchasing fuel, regardless of price hikes. This characteristic makes the current compensation dispute particularly sensitive. If the government inadvertently allows OMCs to bake these costs into the retail price under the guise of “compensation,” it would effectively constitute a regressive tax on the most vulnerable sectors of the economy, who are already struggling with the KES 178.28 per litre price point for Super Petrol.

Global Context and Historical Precedent

This controversy does not exist in a vacuum. It follows a pattern of governance challenges seen in the 2023/2024 financial year, where the Auditor General flagged billions of shillings in unsupported payments to OMCs under the government-to-government (G-to-G) importation deal. The current friction over the Sh11 payment reflects a lack of confidence in the oversight mechanisms that have historically failed to protect the public purse. Furthermore, the global backdrop of a conflict-driven oil market, with Brent crude volatility reaching recent highs of over $100 per barrel, creates a pressurized environment where regulatory mistakes are amplified.

The regulator now faces a pivotal moment. The choice is between continuing a path of secretive, OMC-centric compensation that invites legal challenge, or pivoting toward a transparent, data-driven approach that includes consumer voices. As the federation waits for a response from the Cabinet Secretary, the question remains: will the government prioritize the balance sheets of oil marketers, or will it safeguard the consumer in an era of unprecedented energy uncertainty? The answer will likely define the energy sector’s reputation for the remainder of the fiscal year.