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Brace yourself for another fuel price hike

A pump attendant fuels a car at a filling station along Koinange Street, Nairobi. [Elvis Ogina, Standard]

Kenyans should brace themselves for more pain at the pump with the Government expected to hike the cost of fuel today.

The Energy and Petroleum Regulatory Authority (Epra), according to industry sources, is likely to increase pump prices by at least Sh10 at the pump even as the government cushions consumers by about Sh40 per litre through its subsidy.

The surge will be on account of the high cost of crude oil as well as the volatility of the shilling which continued to weaken against the US dollar in the course of June.

While the Government is expected to continue subsidising retail prices but this too continues to be inadequate to shield Kenyans from high prices at the pump, which are already at historical highs.

An industry source also claimed there could be fuel supply hiccups in the offing owing to a shortage of US dollars. They explained that importers of oil consignments needed to be paid in US dollars but their shortage would delay the clearing of payments and in turn affect oil marketers' access to products.

Higher pump prices will make it worse for Kenyans who are already grappling with a high cost of living, with fuel being at the core of the rising costs of different commodities. Inflation in June stood at 7.9 per cent, the highest since 2017.

Murban crude oil touched a high of $118 per barrel over the last one month compared to an average of Sh ($112.48) per barrel in May. Prices have however come down to about Sh ($100) per barrel in anticipation that increased production by some of the world’s largest oil producers would reduce oil prices. The countries cut production in 2020 to shore up prices after measures put in place to curb the spread of Covid-19 across different countries resulted in demand declining substantially and in turn a collapse in oil prices.

The shilling has also further weakened, trading at Sh118 to the US dollar in the course of June from an average Sh116.89 in May.

While local pump prices have risen especially over the last two pricing cycles, the government has spared Kenyans the worst of the increases by paying a fraction of the retail price.

Without the subsidy, a litre of super petrol would be retailing at Sh184.68 in Nairobi against the current price of Sh159.12, diesel would be at Sh188.19 compared to the pump price of Sh140 and kerosene Sh170.37 compared to the subsidised cost of Sh127.94.

It is however unclear how much longer the government will keep cushioning Kenyans. It draws the subsidy money the Petroleum Development Levy (PDL) fund, a kitty funded by motorists who pay Sh5.40 per litre of diesel and petrol they consume.

The collections are however thin and Treasury has to look for funds elsewhere to supplement what is collected through the kitty.

The Ministry of Petroleum has in the past said the subsidy is unsustainable, noting that while it collects about Sh2 billion per month through the PDL, it has been spending about Sh4 billion on average every month and as high as Sh8.5 billion as fuel prices went up sharply, which meant that government had to subsidise by huge margins.

This is especially so over the last couple of months, where for instance in the June-July pricing cycle, the subsidy for a litre of super petrol stood at Sh25.56, Sh48.19 per litre of diesel and Sh42.43 for a litre of kerosene.

Between April last year and May this year, the Government spent Sh49.2 billion on the subsidy. This may have however risen in recent months, with one of the oil marketing companies claiming it has reached Sh32 billion, with the industry demanding Sh10 billion in compensation from the Treasury every month.

While it has saved motorists from the full impact of the higher oil prices and a weaker shilling, the subsidy has been subject to controversies including the supply hiccups experienced in March and April

There have also been reports that the Treasury had allocated funds from PDL to other State Departments that are not directly involved in the stabilisation of petroleum prices.

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