Fuel subsidy saves motorists from hike in pump prices

A fuel pump assistant fueling a vehicle at a petrol station along Kenyatta Avenue, Nairobi. [Edward Kiplimo, Standard]

Kenyans have been spared a hike in the cost of fuel over the next one month as the government increased the subsidy on petroleum products.

The Energy and Petroleum Regulatory Authority (Epra) today reduced the pump prices for kerosene and diesel by Sh2 a litre for the two products. However, the price of petrol was not changed.

The petroleum industry regulator noted that the state would over the next month cushion use of diesel to the tune of Sh19.82 per litre through the pump price stabilisation mechanism. Super petrol will receive a cushioning of Sh12 per litre.

In the November-December fuel pricing cycle, a litre diesel will now retail at Sh203.47 in Nairobi while kerosene will be going for 203.06. Super petrol will continue retailing at Sh217.36 per litre in Nairobi.

Without the subsidy, a litre of super petrol would have retailed at Sh229.37 in Nairobi. Diesel would have retailed for Sh223.29 while kerosene, which has been subsidised by Sh3.64, would have risen to Sh206.70.

Epra said the higher prices would have been due to higher landed costs of petroleum products.

“In the period under review, the  maximum allowed price for super petrol remains unchanged while that of diesel and kerosene decrease by Sh2 per litre,” said Epra in its monthly price capping guide.

“In order to cushion consumers from a spike in pump prices as a consequence of increased landed costs, the government has opted to stabilise pump prices for the November-December 2023 cycle. The National Treasury has identified resources within the current resource envelope to compensate oil marketing companies.”

At the onset of his term in September last year, President William Ruto scrapped the subsidies on fuel terming it as subsidising consumption but has in the recent past resorted to them as the price of fuel get out of reach for Kenyans and threatens to slow down the economy.

The Energy and Petroleum Ministry had earlier this month caused a scare when Cabinet Secretary Davis Chichir warned Kenyans to expect retail prices to go up in the coming months to Sh300 a litre. He had noted that the Israel-Hamas war could push up the cost of oil to $150 (Sh22,770) per barrel.

Crude oil prices have however defied the speculation. Saudi Arabia’s Murban crude oil, which constitutes a significant portion of Kenya’s imported refined petroleum products, has been hovering at around $83 (Sh12,600) per barrel over the last week, retreating from a high of $90 per barrel in late September, a spike triggered by the reduction in oil production by major oil producers.

Despite applying pump price stabilisation measures and offering a slight reprieve for diesel and kerosene users while retaining super petrol prices at the same level, pump prices still remain high.

The high cost of fuel has been hurting the economy, with many companies noting that the record retail prices have partly contributed to the costs for raw materials rising at their fastest pace in over a decade in the course of October, with the manufacturers passing the higher costs to consumers.

According to Stanbic’s Purchasing Managers Index (PMI) for October – – the rise in fuel prices  and associated transport costs resulted in input costs rising “at the quickest pace since the survey began nearly a decade ago, leading companies to also increase selling prices at a record rate.” The PMI measures the performance of private sector by surveying the activity of over 400 companies.

Due to high cost of fuel, many Kenyans have altered their daily commutes with motorists opting to take matatus to work while those who cannot afford higher fares are forced to walk. Industries on the other hand are reporting higher operating costs and passing on the increased costs to consumers.

The result of the high fuel costs has been a slowdown in consumption by both industries and private, according to data by the Kenya Bureau of Statistics (KNBS).

Over the six months to June, Kenyans consumed 1.09 billion metric tonnes of diesel, which was a decline of 4.87 per cent when compared to the 1.15 million metric tonnes consumed last year over a similar half. Diesel is critical for several sectors including transport, agriculture and manufacturing that heavily rely on the fuel to power their operations.

It is the same case for super petrol whose consumption dropped 3.6 per cent over the period between January and June, motorists consumed 742 million metric tonnes of petrol compared to 770 million tonnes consumed over the first half of 2022.

Reduction in petroleum consumption, economists have in the past warned, is never a positive sign for the economy. They note that this is an indication of companies reducing activities and might eventually lead to slowdown or even a reduction in production. This could also result in unemployment as companies initially stop hiring and with time declare redundancies.

Opinion
How Kenya can create value for all players in the tea industry
Business
Premium Why counties are unable to hit revenue targets
Business
Government borrows Sh223.5 billion in five months
Business
Premium Budget experts fault Ruto's plan on Sh794b pending bills