Parliament orders probe into the fuel subsidy fund

Auditor General Nancy Gathungu before the National Assembly's Cohesion Committee at Continental House, Parliament, Nairobi, April 15, 2025. [Elvis Ogina, Standard]

Parliament has ordered a review of Kenya’s fuel price stabilisation framework following a period of unprecedented volatility that saw pump prices hit record highs in May.

The price increases also came amid concerns over the sustainability and transparency of the Petroleum Development Levy (PDL) fund, which is meant to cushion consumers from price shocks.

The National Assembly’s Budget and Appropriations Committee (BAC), which has ordered the probe on the PDL Fund, is not the first to raise concerns. Other oversight bodies have cast doubt on the governance of the PDL kitty.

The Auditor General, Nancy Gathungu, recently revealed that the Ministry of Energy and Petroleum had ignored a 2022 directive to establish a governance framework for the fund.  

This has seen the Ministry continue operating the kitty without clear budgeting guidelines or oversight, dishing out billions sometimes to state agencies that do not have petroleum stabilisation or development mandates.

Others that receive transfers from the kitty, such as the National Oil Corporation (Nock), the state-owned Kenya Pipeline Company (KPC), and the Kenya Petroleum Refineries Limited (KPRL), should be self-sustaining.  

This has left the financial health and future viability of the subsidy plan in doubt.

The demand by the MPs, which has a deadline of September 30 this year, comes weeks after the Energy and Petroleum Regulatory Authority (Epra) raised super petrol prices in Nairobi to Sh214.25 per litre and diesel to an all-time high of Sh242.92 per litre in the May-June pricing cycle.

Diesel prices were later reduced to Sh232.8 per litre following two-day public protests that paralysed the economy.  

The high prices have triggered concerns among consumers, transport operators, and industries over the escalation in the cost of goods.

The increases were linked to rising international fuel costs and supply disruptions in the Middle East.

The audit on the PDL Fund is expected to settle concerns about how much money remains available for future interventions, but also whether the current model can continue shielding consumers from volatility in international energy markets.

The budget committee in the report recommended that “by September 30, 2026, the National Treasury, in consultation with the State Department of Petroleum, undertakes a review of the PDL and its usage in fuel price stabilisation”.  

“This review should include a framework for sustainable fuel price stabilisation, clear expenditure thresholds, forecasting of fuel price shocks, and enhanced accountability and report mechanisms,” said BAC in the report on the budget estimates for the 2026-27 financial year.

Petroleum development

The government in mid-May said it had spent Sh13.7 billion from the PDL Fund to cushion Kenyans from high fuel prices over the April-May and May-June pricing cycles.

It noted that while pump prices had hit historical highs, the situation would have been worse without the intervention through subsidies from the PDL kitty.

The money used over the months is nearly half of what the government collects through the levy annually.

The levy raked in Sh25.5 billion in the year to June 2025, according to an annual report on the PDL Fund by the Energy and Petroleum Ministry.

The money was split between fuel price stabilisation and petroleum development activities by the agencies housed by the Energy Ministry, with the majority going to cushioning motorists through stabilisation.

The kitty is funded by motorists, who pay Sh5.40 per litre of super petrol and diesel as PDL.

The levy, introduced in 1991, was 40 cents per litre but shot up in July 2021 to Sh5.40 for super petrol and diesel. It is still at 40 cents for other fuels such as kerosene.  

The Auditor General, in a recent audit report, said the PDL Fund could have been managed better and cushioned Kenyans a lot more in the coming weeks and possibly months in stabilising pump prices.

In auditing the fund for the year to June 2025, the Auditor General noted that the Energy and Petroleum Ministry had failed to act on earlier recommendations to put in place structures to manage the fund sustainably.

Governance framework

Other than stabilising pump prices, the fund finances other areas generally aimed at further developing the petroleum industry.  

“Review of the status during audit of the fund in 2024-25 revealed that the lack of governance framework for stabilisation of petroleum prices remained unresolved as management was still owing an appearance before the Public Accounts Committee,” said the Auditor General in the report, adding that these are among the issues raised in past years that had not been acted upon.  

“Review of documents relating to the stabilisation programme revealed a letter from the National Treasury dated July 21, 2022, which advised the State Department to form a multi-agency team to review the resource requirement and assess the sustainability of the fuel price stabilisation programme.

“However, the management did not constitute the task force and continued to make payments towards petroleum price stabilisation. In the circumstances, the existence of mechanisms to guide budgeting and financing stabilisation of the petroleum pump prices programme could not be ascertained.”

The lack of a framework to ensure the sustainability of the subsidy or pump price stabilisation programme could be a pointer that the programme could achieve much more than it currently does.  

Over the year to June 2025, out of the Sh25.54 billion collected through the kitty, about half of the money was spent on oil market stabilisation at Sh13.18 billion.

This means that over the April-May and May-June pricing cycles, the government has spent the entire amount it spent in the year to June 2025 in subsidising motorists.  

The money from the kitty also goes to other petroleum development activities.

Over the period to June last year, about Sh5 billion was transferred to Nock, with the state-run oil marketer sending Sh4.91 billion on recurrent activities and another Sh302 million on development activities.

The Petroleum Ministry also transferred Sh3.52 billion to KPRL, which the KPC-owned facility spent on recurrent activities.

Other transfers were to Epra (Sh150 million) to support its development budget, while the State Department of Petroleum retained Sh2.38 billion, which it reported as having also been used on development projects.