The government’s handling of the fuel crisis has been messy and uncoordinated. Ever since the global oil supply gridlock started with the US and Israel attack on Iran, nations around the world took proactive measures to shield their citizens from the fallout of the crisis, cutting taxes and even reducing the work week to reduce travel and manage their fuel stocks. Kenya’s actions, on the other hand, have left many questions unanswered.
First was the government’s unconvincing reassurance that the country had enough fuel. Officials provided conflicting information on the actual stock available, with statements from the Ministry of Energy and Petroleum indicating that the market could weather the storm until new cargo arrived. But this soon began to unravel as parts of the country ran out of fuel, while some dealers raised their prices above the guidelines set by the Energy and Petroleum Regulatory Authority.
The regulator’s response to this was a lukewarm threat to cancel the licences of the various petrol stations. It was clear in the last two weeks that some oil dealers were hoarding fuel in anticipation of huge price in the monthly guidelines, but Epra seems toothless in dealing with the oil marketers, to the detriment of the consumer.
Matters came to a head when one oil marketing company imported a consignment that was allegedly of substandard quality, albeit with full government knowledge. The fuel was already in the distribution pipeline by the time top government officials in the oil industry were forced to resign and arrested. They have not been charged in court weeks after the scandal broke, and that alone raises suspicion that the action taken was not in the public interest but to protect the profits of the few who are benefitting from the government-to-government oil import agreement.
Now the government’s belated decision to cut value-added tax on fuel products has put it in direct conflict with its foreign funders, the International Monetary Fund, which has been pushing for more taxes instead. It could not have come at a worse time, as Treasury officials were in the US to meet the IMF to negotiate for financing. The eight per cent cut in VAT announced by President William Ruto was a desperate move to appease the public after a record price increase a day before, who are nevertheless contending with higher prices of goods and services. It is not lost on the mwananchi that Ruto himself doubled the VAT to 16 per cent immediately he took office in 2022.
The effect of the tax cut will be significant on the government’s revenue, and will put added pressure on Kenya to collect enough funds to meet its budgetary obligations, especially on its huge debt repayments. Petroleum is one of the largest sources of tax revenue, including the road maintenance levy of Sh25 per litre and the petroleum development levy of Sh5.40 per litre. Analysts have over time pointed out the risk of the government relying heavily on one sector for a big chunk of its revenues, and the Iran crisis has brought this to the fore.
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The back and forth in the Iran conflict means that supply of fuel products might not be at optimum levels for some time. The situation demands that the government take more coherent measures to limit the burden on the citizens.