Effect of Pump Price Regulation on Financial Performance of Oil Marketing Companies in Kenya

Abstract

Petroleum products are a key ingredient to economic growth of Kenya because of its role in the productivity of almost all sectors in the economy. There were high fluctuations in international fuel prices coupled with unstable exchange rate and the desire to make huge profits among oil marketing firms between the periods 2008 to 2009. Pump regulations describe a scenario where by the Government plays a big role in the establishment of prices to be charged by sellers of a given good or service. Oil industry in Kenya has experienced a number of reforms to improve the efficiency of making oil products available to common citizens. This study sought to determine the effect of pump price regulations on financial performance of oil marketing companies in Kenya. The study adopted descriptive design. The target population was all oil marketing companies in Kenya. Data was collected from secondary sources over a period of 2012-2016. The collected data was analyzed using descriptive and inferential statics. The analyzed data indicated that at 5% level of significance, pump prices posted a strong negative correlation to performance of oil marketing firms as indicated by a Pearson correlation coefficient of -0.721. Firm size posted a weak positive correlation with performance as supported by a coefficient value of -0.064. Foreign exchange rate showed a strong negative correlation with performance as the Pearson Correlation coefficient value was low at 0.874. A weak positive correlation existed between inflation and performance of oil marketing firms as supported by a Pearson correlation coefficient of 0.168. From the regression analysis results, these variables examined explained 79% changes in financial performance of oil marketing firms. From regression analysis, inflation significantly affected financial performance of oil marketing firms. The study established that pump prices significantly determined the performance of oil marketing firms. This study therefore recommends that the Government work on maintaining a moderately stable pump prices which is not too high so that the commodity can remain affordable to the common citizen. This study therefore recommends that the Government of Kenya work hard to maintain the general level of prices for goods and services stable for a stable in demand for fuel products and stable financial performance of oil marketing firms. This study therefore recommends for increased stabilization of exchange rates to reduce the level of volatility in performance.