Who controls pump prices in the region?
That is the right place to start, because there is a big misconception here. Excluding taxes and levies, East African governments do not control 85-99 percent of the inputs that go into pump prices. The exact percentage depends on the pricing cycle and the country.
When governments posture that they can control pump prices and procurement directly, it is like trying to operate a boiler at 100 percent above its maximum operating pressure with faulty safety valves. You are pushing your luck. The reality is, most of the cost is set by things happening thousands of miles away.
What makes up the price you see on the board at a fuel station?
It breaks down into four main buckets. First is the cost of the crude or refined product in the international market. Second is freight and insurance.
Third are taxes and levies set by the government. Fourth are the margins for Oil Marketing Companies and dealers.
Let me unpack that. In East Africa, we import refined or finished petroleum products. We don’t have operational refineries in Kenya, Uganda, Tanzania, Rwanda, Burundi, the Democratic Republic of Congo (DRC), or South Sudan. South Sudan produces crude, but it doesn’t refine it locally at scale. So, we are 100 percent exposed to the global market for one of the most volatile commodities in the world.
That means when the Ukraine-Russia war happens, or when tensions spike between the US, Israel, and Iran, we feel it in Nairobi, Kampala, and Kigali. Information flows in real time now. We are part of one big global village and marketplace, and we have no insulation. Until we produce crude in the region and build refineries to meet even part of our demand, we cannot affect prices without someone in the system absorbing the cost. Right now, that someone is often the government when it takes responsibility for pricing or procurement.
You mentioned freight and insurance as the second bucket. Is that also outside government control?
Completely. All fuel coming into the region is delivered by chartered vessels that are foreign-owned. The cost of chartering those vessels moves with global geopolitical temperature, especially in regions with refining capacity.
Currently, insecurity in certain shipping lanes has pushed up both vessel demand and insurance premiums. Ship owners raise premiums to cover war risk, and those costs get passed down. East African countries can’t dictate those rates. The best we can do is negotiate. But we don’t control the market.
Let’s put some numbers to this. How much of the pump price is actually landed cost versus taxes?
Using Kenya as an example, the landed cost makes up about 55 percent of the pump price for premium petrol at Kshs214.25 per litre in Nairobi, and about 70 percent of diesel at Kshs232.92 per litre. Taxes then contribute another 35 percent for petrol and 28 percent for diesel.
In Uganda, it is similar. Excise duty alone accounts for 25 percent of a premium petrol price of Shs6,180 per litre, and 20 percent of diesel at Shs6,300 per litre. I have sampled one of the higher prices in Kampala here, but Uganda’s prices aren’t regulated, so they vary from station to station and road to road.
So, product cost plus taxes and levies account for roughly 90 to 95 percent of pump prices in both Kenya and Uganda. The remaining 5-10 percent is split between the oil marketing company margin and the dealer margin. That margin has to cover operational expenses, transport, staff, rent, and profit. Downstream oil and gas is highly capital-intensive. So OMCs need a reasonable return to stay in business.
You said the whole system is under pressure. What do you mean by that?
Simple math. We have no control over 60-70 percent of the current pricing structure, and that is before you even add taxes and levies. The only element governments can directly control is taxes and levies.
That means there are no short-term solutions to high prices that don’t involve someone absorbing the loss. If governments keep trying to set prices below market reality, the OMCs and dealers bleed, supply gets disrupted, and shortages follow. The pressure is building. The current procurement and pricing models may have worked for us before, but the global environment has changed. We need to review them if we want control in the future.
But why do pump prices differ so much between EAC countries when the product often comes from the same port?
It comes down to procurement models and pricing formulas. Each country has a different arrangement.
Kenya procures under a G2G arrangement. The pump price is computed based on product procured between the 10th of one month and the 9th of the following month. So, the current pump prices are based on product procured between 10th April 2026 and 9th May 2026. The pricing reference is Platts, and Kenya uses Platts M-1. That means Kenyan prices react faster to changes in international crude and refined product prices.
Tanzania uses the Bulk Procurement System (BPS) tendering system, which is similar to the Open Tender System (OTS) model Kenya used a few years ago. BPS is based on Platts M-2.
Rwanda and Burundi procure mainly from Tanzania, so their pump prices mirror the BPS procurement in Tanzania.
Uganda, subject to verification, procures on Platts M-3. That is why Uganda’s prices lag behind Kenya’s. Because of that lag, I expect Uganda’s pump prices to rise relatively steeply in the next two months as the sharp increases in international product prices and freight from March and April 2026 finally hit the market.
So even if the fuel lands at the same port, the month you price it, the reference you use, and the procurement mechanism all create different outcomes at the pump.
Some elements vary from country to country, like for Uganda and Rwanda, you need to add transport costs from Western Kenya or Dar salaam to Kampala or Kigali.
Lastly, the taxes vary from country to country, and this is reflected in the pump prices.
What about price stabilisation funds and price capping? How are those affecting the market?
Price stabilisation is a noble idea. The goal is to cushion consumers from inflationary shocks. In Kenya, the fund is financed by the petroleum development levy, which is built into the pricing formula.
Here is the problem: OMCs often end up selling products below their actual cost or at suppressed margins, with the expectation that they will be refunded by the government later. When those refunds are delayed, OMCs face working capital gaps. They have to borrow to keep supplying, which increases their financing costs.
Those costs eventually eat into margins and profitability, and in some cases, reduce willingness to supply.
It is a trade-off. You can protect the consumer in the short term, but if the mechanism isn’t funded and paid out on time, you weaken the supply chain.
Have you seen customer demand or consumption patterns change in response to these prices?
Yes, and it is not just about price. The Covid-19 pandemic changed behaviour. People learned they could work from home, and many companies have kept hybrid models. That means fewer personal cars on the road every day.
We have also seen a rise in online ordering and home deliveries for household shopping. That reduces individual trips to the shop. The net effect is reduced consumption of petroleum products in the retail segment, even as commercial and transport demand remains strong.
Lower disposable income plays a role too. When people have less money, they optimise trips, use public transport more, and defer non-essential travel.
Given all that, what are the realistic options for governments going forward?
There are three paths, and you have to pick one.
Option one: Stop price control but liberalise procurement. You cannot do both effectively. My view is that governments should focus on price control if that’s what they believe protects the populace, but they should relinquish procurement.
Let competition among traders manage prices. Right now, by controlling procurement through G2G in Kenya and supply agreements in Uganda, governments take on the responsibility and the blame when prices don’t fall.
The current global dynamics and geopolitics are very strong currents. You can’t steer against them with procurement alone.
Option two: Liberalise both procurement and pump prices. Deregulate fully and let the industry run with the global pulse. This releases all the pressure in the system and is the most sustainable long-term scenario. Prices will be volatile, but supply will be stable and market-driven.
Option three is long-term: Fast-track the mining of commercially viable crude in the region, set up refining capacity, and build independent infrastructure to meet part or all of our demand. This is achievable. We have the human resource capacity. What we need is government goodwill, focus, and a professional approach to investment and regulation.
Talks about engaging with Dangote refinery to set up in the region are a step in the right direction. If that happens, it would be the first real foundation stone toward having some control over our petroleum prices.
That sounds like a 10-15-year play. What about the short term?
Honestly, there isn’t a short-term fix that does not involve subsidies or someone taking a loss. The damage from the recent geopolitical shocks is already done. We should plan to live with elevated prices, or potentially worse, for a while.
What we can do now is be honest with citizens about why prices move. It pains me to see leaders spending time explaining global supply and pricing challenges that are completely outside their control, to an audience that does not want to hear it. But the alternative is to take responsibility for procurement and then be expected to deliver lower prices that you cannot deliver.
If you had to give one takeaway to a policymaker right now, what would it be?
Stop pretending we control what we don’t. We don’t control 85-99 percent of the cost before tax. The only lever you truly own is tax policy. If you want lower prices, either reduce taxes or change the structure of procurement and pricing to let competition work. If you want stability, fund your stabilisation mechanism on time and accept that you are paying for it through the levy.
And start building domestic capacity now. Every year we delay, we lock ourselves into this exposure.
Some people argue that OMCs are making excess profits. Is that true based on your analysis?
The OMC and dealer margin is only 5-10 percent of the pump price. That has to cover transport, storage, retail operations, staff, maintenance, and profit. In a capital-intensive business with thin margins, delayed government payments and price suppression hurt more than they help.
If OMCs can’t recover costs and earn a return, they reduce investment, reduce supply, or exit. That does not help consumers either.
A healthy downstream sector needs sustainable margins. The goal should be to have a conversation based on how the system actually works, not how we wish it worked. Once people understand that, the policy choices become clearer, even if they’re not easy.
Any final thoughts for consumers who are feeling the pinch?
Understand that the board price is mostly set in Rotterdam, Singapore, and the Persian Gulf, not Nairobi or Kampala.
Change your consumption habits where you can, and hold leaders accountable for the things they actually control: tax policy, efficiency of procurement, and building local capacity.
Complaining about global crude prices won’t change them. Building a refinery and reforming the procurement model might.