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Billions in fuel fund idle as consumers pay high prices

By Macharia Kamau | March 16th 2021
Fuel pumps at a petrol station in Nairobi, February 18th, 2021 [Elvis Ogina, Standard]

A fuel subsidy meant to cushion Kenyans from the high cost of fuel is unlikely to materialise any time soon as the Government delays mechanisms to operationalise it.

This is despite a sharp rise in the cost of fuel, which has attracted the ire of Kenyans. The high pump prices are coming at a time Kenyans are reeling from the effects of Covid-19 and can ill afford spikes in the cost of transport and goods.

In July last year, the ministry of Petroleum increased the Petroleum Development Levy (PDL) to Sh5.40 from 40 cents – an increase of over 1,000 per cent – with a promise the money going into the levy fund would be used to stabilise fuel. Later, the ministry said the money would be used to subsidise the retail price of diesel in the event the cost of crude oil went above $50 per barrel. This was breached in early January and is nearing $70.

Diesel is a critical fuel largely used by transporters and industries. A marginal spike in its cost will always cause increases in bus fare and prices of essential consumer goods.

Kenyans will however have to wait longer before they can get any help from the Government even as the fund continues to accumulate billions every month. This is even as all indications are that fuel prices will keep rising to keep pace with crude oil prices.

Petroleum PS Andrew Kamau told The Standard that the regulations that would enable the ministry draw money from the PDL fund are yet to be drafted and even then, they would have to be subjected to public participation.

“It (the regulation) has to go through public participation,” Kamau said yesterday.

Other than the PDL, there are a host of other taxes which account for nearly 50 per cent of the retail cost of fuel in Kenya. Out of the Sh122.78 that motorists will pay for a litre of petrol in Nairobi, Sh57.33 will go to the Government in form of taxes and levies.

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Between July and December, two billion litres of fuel were consumed, charged at Sh5.40 per litre, meaning the Government raised at least Sh11 billion for the PDL Fund.

The money collected, the Ministry had said, would be invested in development of the oil industry “including to stabilise petroleum pump prices in instances of spikes occasioned by high landed costs”.

In December, the ministry published a number of draft regulations expected to operationalise the Petroleum Act of 2019. It however did not publish one meant to guide the process of tapping into money already collected through the PDL Fund.

Kamau said the draft regulations published are currently undergoing public participation. They are being handled separately and are under the purview of Energy and Petroleum Regulatory Authority (EPRA).

Stakeholders have faulted the Ministry over failure to give directions on how the fund will be administered.

Consumers Federation of Kenya said the ministry should plough back the money it has collected through levy in subsidising retail prices for Kenyans. This is especially considering Kenyans are still suffering the impact of Covid-19, with many of them yet to find their footing after losing jobs and entrepreneurs who suffered loss of demand for their products. The lobby notes that the levy may have been more of a tax-raising measure than a tool to stabilise fuel prices.

“From what we are seeing, it seems PDL Fund was not meant to cushion consumers. The expectation was, given the rise and the fact they have been talking about it, then they would subsidise even when they do not have regulations ready. But here is a case where they took peoples’ money without proper mechanisms to deliver on the promise,” said Secretary-General of Cofek Stephen Muturo.

“There is raw anger among Kenyans and for a good reason…  the Government is completely out of touch with the reality of people who have been affected by Covid-19 and are then subjected to further agony of higher fuel prices even when they are expecting some relief from the money they collected from the levy.”

“The economy will have a serious beating. There will be a spiral effect on consumer goods as well as cost of travel. It will be instant and it will affect everybody.”

The Kenya Civil Society on Platform on Oil and Gas (KCSPOG) said it has been tracking fluctuations in pump prices and has flagged increasing taxation. It noted that the contribution of taxation to the retail price of petrol has gone up by almost 10 per cent bringing it to about 50 per cent for some petroleum products.

“The pricing formula in its current format has maintained an almost predictable stream of revenue for government and oil marketing companies but has not done well in protecting consumers,” said Charles Wanguhu, coordinator KCSPOG. He added that the proposed regulations should also explain ways in which money from PDL Fund cushion consumers.

“While the regulations address awareness on maximum prices and controls for distortion of market forces, we expected to see, incorporated within the pricing regulations, how the subsidy was envisioned to take effect to reduce transfer of fluctuations in international prices to the end consumer.”

While taxes on petroleum have always been high, the government has appeared keen to raise even more revenues from the industry.

In 2018, the Government raised fuels taxes which saw introduction of an anti-adulteration levy on Kerosene at Sh18 per litre. This raised its cost to be at par with that of diesel and dissuade unscrupulous businesses from lacing the kerosene with diesel to push up volumes.

The Government, in 2018, increased excise levied on kerosene by Sh3.10, pushing the total excise duty to Sh10.31 per litre, from Sh7.21. The move was also aimed at reducing adulteration.

The government would also, in 2018, introduce the eight per cent VAT on petroleum products. This was a negotiated rate after a public outcry which saw the government settle on eight per cent rather than the standard 16 per cent.

The Road Maintenance Levy has, in the last decade, has doubled going up to Sh18 per litre of diesel and petrol from Sh9 per litre. It had been adjusted in 2014 to Sh12 then to Sh18 in 2016.

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