The Government plans to increase the price of kerosene by Sh21 per litre over the next one year to tame fuel adulteration. However, the move could hurt poor households across the country.
The fuel, used by rural and poor urban households for lighting and cooking, has also been abused by unscrupulous oil dealers that use it to increase volumes of diesel and super petrol.
This would mean the retail price of the fuel would increase to Sh100 a litre in Nairobi based on today’s pump price of Sh78.22 per litre.
It has also cost Kenya a lot of business from neighbouring countries, with its landlocked neighbours such as Uganda, Rwanda and Eastern Democratic Republic of Congo opting to use Tanzania as an import route.
In a new proposal, the Energy Regulatory Commission (ERC) wants the National Treasury to increase kerosene taxes to be at par with taxes levied on diesel with expectations that this will bring down fuel adulteration.
New high tax regime
“It is therefore recommended that Kerosene tax should be raised to the same as that of diesel in three increases of Sh7.053 per litre within a one-year period,” said a report by ERC, making the recommendations to the Ministry of Petroleum and Mining.
Currently, kerosene users pay taxes totalling to Sh8.41 per litre compared to Sh39.16 for users of super petrol and Sh29.57 for diesel. The proposal would mean increasing taxes by Sh21.16 per litre so that they are on the same level with what is levied on diesel at Sh29.57.
The increase in taxes is expected to reduce consumption of kerosene by 75 per cent, from the current 44.4 million litres per year to 11 million litres.
The regulator estimates that despite the reduction in consumption, the country will get an additional Sh29 billion per year in taxes following the implementation of the new high tax regime for kerosene.
It proposes using the money in growing use of cooking gas among households currently using kerosene, charcoal and firewood. It expects this to take care of households that will be affected by higher prices of kerosene.
“The expected revenues can be ploughed back to the energy sector in two ways ... Increasing LPG consumption so as to reduce biomass use and promote electricity access through REA,” said ERC.
The recommendations by ERC are based on a study of the Tanzanian market that has succeeded in taming fuel adulteration primarily through increasing the cost of kerosene through tax hikes.
Reduction in adulteration of fuel, in addition to efficient processes at its ports, has resulted in more importers from neighbouring countries preferring to use the central corridor to import petroleum products. ERC notes that Kenya’s Northern Corridor has lost half of its market share to Tanzania.
“The exported fuels from Kenya have on many occasions failed on quality at the destination ports. This has forced some traders in the export to abandon Kenya as a preferred transit route,” said ERC. “Consequently, Kenya has lost almost 50 per cent of its transit market share to Tanzania.”
The proposals by ERC appear to be in line with what industry players want. The Petroleum Institute of East Africa, a lobby for oil marketing companies in the country, in March said while retaining a low tax regime on kerosene was a way of cushioning the poor against high energy prices, it was also hurting the economy and the real winners were the fuel adulterators.
“The Government sacrifices revenue to sustain low kerosene tax, which only benefits the unscrupulous business people at the expense of the much needed tax revenue that can be used to support LPG infrastructure development,” said PIEA.