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Kenyans staring down the barrel as cost of fuel hits all-time high

Super petrol will now retail at Sh217.12 per litre in Nairobi, an increase of Sh5.72. The government says it tapped into petroleum development levy to cushion consumers.  [Elvis Ogina, Standard]

Fuel prices have risen to an all-time high in the latest review even as the government reintroduced subsidies that proved inadequate to save consumers from further pain at the pump. 

Super petrol will now retail at Sh217.12 per litre in Nairobi, an increase of Sh5.72 a litre, and as high as Sh231.36 per litre in Mandera.

Diesel will, on the other hand, retail at Sh2.5.47 per litre in the capital, while kerosene will go for Sh205.06 per litre.

The increase in pump prices is despite the government putting in place the fuel stabilisation mechanism, which is meant to cushion consumers from high prices.

The Energy and Petroleum Regulatory Authority (Epra) said Saturday that the State would pay Sh11.64 per litre of diesel as a stabilisation amount, Sh9.60 per litre of kerosene and Sh3.60 per litre of super petrol.

The money is drawn from the Petroleum Development Levy Fund (PDL), a kitty financed by motorists, who pay Sh5.40 per litre of petrol and diesel they consume.

It is now feared that the high fuel prices – which have consistently been on an upward trend the whole of this year – could dampen economic growth prospects, while companies could shelve expansion plans, including plans to hire. 

The trend is also likely to deal a blow to the government’s ambitions to create more jobs.

Epra Director-General Daniel Kiptoo, at a press briefing in Nairobi, said the higher landed cost of petroleum products resulted in the price hike.

Mr Kiptoo said the per cubic unit of landed petrol increased by 3.93 per cent, that of diesel by 7.07 per cent and Kerosene by 5.01 per cent.

Energy and Petroleum Cabinet Secretary Davis Chirchir said despite the increase, the government would use funds from the PDLF to cushion Kenyans.

“The government has decided to cushion Kenyans to a good extent using the Petroleum Development Levy Fund to support the pricing changes announced by Epra,” Mr Chirchir said.

He said cushioning consumers during the October-November pricing cycle would cost the government about Sh1.77 billion.

Were it not for government intervention, the actual price in Nairobi would have been Sh220.43 per litre of petrol, diesel Sh217.11 and Kerosene Sh214.66.

The opposition and economists criticised the move, saying it would worsen the high cost of living in the country and stall economic growth.

Minority Leader in the National Assembly Opiyo Wandayi told Sunday Standard the price hikes in every pricing cycle are not sustainable.

“The (high) prices are a terrible burden to citizens who are already burdened by the high cost of living. Something must be done to stop it,” said Mr Wandayi.

ODM chairman John Mbadi said the Kenya Kwanza administration erred by doing away with the fuel subsidy introduced by the former Jubilee government.

Mr Mbadi said the government should have considered subsidy as a production subsidy as opposed to a consumption one.

“Removing the subsidy on fuel was the worst mistake the government has made. The government should look at the taxes which can be removed to help lower the cost of fuel,” said Mr Mbadi.

Israel Agina, an economist and the Chairman of the Kenya National Chamber of Commerce and Industry Kisumu Chapter, said the latest hike in fuel prices would reduce the spending power of many Kenyans already overburdened by increased taxes.

“It is really unfortunate. It will affect importation, and life is going to be more difficult,” said Mr Agina.

Epra announced that Oil Marketing Companies (OMCs) would be compensated for the under-recovery of costs in line with the PDL Order of 2020.

The cushioning of motorists from high fuel costs has been a contentious issue.

The Jubilee administration had introduced subsidies on fuel to cushion consumers and industry players, but the new Kenya Kwanza government removed them, terming them unsustainable.

The subsidy on super petrol was the first to go in September last year, while those of diesel and kerosene were removed in May this year.

President William Ruto’s government, however, reinstated the subsidies temporarily in the August-September pricing cycle but withdrew them a month later, which saw pump prices shoot to their highest at the time.

It has reintroduced the cushioning mechanism, although prices have still risen to a new high.

Epra has in the past clarified that the cushioning mechanism is not a subsidy but rather a price stabilisation mechanism that is facilitated by the PDL.

Scrapping the subsidies on petroleum products was a move supported by the International Monetary Fund (IMF), which has been pushing the government to look for mechanisms to grow tax collections.

Other than the removal of subsidies and global factors, taxes are to blame for the higher prices.

The latest addition to tax was the doubling of the Value Added Tax (VAT) on fuel, which on July 1 increased to 16 per cent from eight per cent as the Finance Act, 2023 became effective.

Sustained high fuel prices this year have resulted in consumers shying away from the pump. This is seen in the amount of fuel consumed over the first half of this year, which fell compared to a similar period last year.

Over the six months to June, Kenyans consumed 1.09 billion metric tonnes of diesel, which was a decline of 4.87 per cent compared to the 1.15 million metric tonnes consumed last year over a similar half, according to data by the Kenya National Bureau of Statistics (KNBS).

The continued increase in fuel pump prices is a major concern, especially the price of diesel, which is critical for several sectors, including transport, agriculture and manufacturing as they heavily rely on the fuel to power their operations.

The net effect of this is seen in the increase in the cost of most consumer products and services as well as public transport.

Matatu owners have already warned Kenyans to prepare for higher fares in the wake of the latest increase in fuel pump prices.

“It is going to be a nightmare because, after the last hike, the response was not good, especially for town services. Commuters are yet to come to terms with and have cut back on their daily commute,” said the Chairman of the Matatu Welfare Association (MWA) and Secretary of the Federation of Public Transport Sector (FPTS) Dickson Mbugua. The federation draws members from matatu associations.

“We have a federation meeting next week where we will decide what action to take. The indications are that fares are going to go up. For long-distance operators, maybe the increase will not be much because they are able to adjust, but the town services, these are likely to go up immediately.”

“We have in the past talked to authorities, but they tend not to listen, and that is why we had to increase fares in September.”

Matatus recently hiked fares by about 30 per cent following the September-October pricing cycle.

Epra announced the new pump prices even as crude oil prices see-sawed, reducing a week ago on concerns of weak demand as world economies battle different economic challenges before going up following the ongoing Israel-Hamas conflict as well as the production cuts by major oil-producing countries.

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