Low-income households hit hardest as fuel prices shoot to all-time high

Fuel prices have gone up, in the latest review by the Energy and Petroleum Regulatory Authority (EPRA), crossing the Sh200 mark for the first time in Kenya’s history. [File, Standard]

Low-income households will be hit hard by the latest hikes in the cost of petroleum products with kerosene registering the steepest climb to Sh202.61 per litre in Nairobi, a historical high.

The new price is an 18 per cent jump from Sh175.22 it was retailing at over the fuel pricing cycle to September 14.

This will further push up the cost of living for many poor households that use kerosene for cooking and lighting in both urban and rural Kenya.

Motorists too have not been spared with super petrol now selling at Sh211.64 per litre in Nairobi from Sh194.68, while a litre of diesel has increased to Sh200.9 per litre from Sh179.67. 

“Taking into account the weighted average cost of imported refined petroleum products, the changes in the maximum allowed petroleum pump prices in Nairobi area are as follows: super petrol increases by Sh16.96, diesel increases by Sh21.32 and kerosene increases by Sh33.13 per litre,” said the Energy and Petroleum Regulatory Authority (Epra) when it released the fuel capping guide for September-October pricing cycle on Thursday.

The government’s withdrawal of subsidies was among the factors that resulted in the sharp increase in pump prices.

Other factors that pushed up costs include higher landed costs due to the weakening of the shilling. The local currency has over the last year been on a free fall and is trading at over 150 against the dollar in many forex dealers.

Epra used the rate of Sh148.98 to the dollar, which it said was the average exchange rate in the month of August. This is in comparison to Sh123.88 to the dollar in September last year.

The cost of crude oil, the other factor that heavily influences the direction that local retail prices for fuel will take, has declined in the last year and averaged $75.61 (Sh11,250) per barrel in August.

This is in comparison to a high of $105.96 (Sh15,890) per barrel in September last year.

Thursday's prices are the latest in the series of hikes in fuel prices that have taken place in the recent past. Pump prices shot up on July 1 as the government implemented the Finance Act 2023, which increased value-added tax (VAT) on petroleum products to 16 per cent from the earlier eight per cent. 

On July 1, the cost of super petrol went up by Sh13.49 a litre to Sh195.53 in Nairobi. Diesel went up to Sh179.67 per litre - an increase of Sh12.39 - while kerosene went up to Sh173.44, going up by Sh11.96 per litre.

A litre of petrol went up to Sh207 in far-flung towns of Elwak and Sh209 in Mandera. 

The government, however, reinstated subsidies on fuel in the August-September pricing cycle preventing the retail price of super petrol from going over Sh200.

This saw super petrol retail at Sh194.68 per litre in Nairobi compared to the Sh202.01 that it would have hit without the State’s intervention, with the government footing the Sh7.33 difference for every litre. 

Reinstating the subsidy was a u-turn by President William Ruto's government which had scrapped the cushioning mechanism, dismissing it as unsustainable and tended to distort the market.

Instead, his government opted to subsidise production through initiatives such as the fertiliser subsidy as a measure to reduce food prices.

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

Epra has clarified that the cushioning mechanism was not a subsidy but rather a price stabilisation that was facilitated by the Petroleum Development Levy (PDL).

Motorists pay the levy at Sh5.40 per litre of super petrol and diesel every time they fuel. Kerosene is also charged PDL but at a lower rate of 40 cents per litre.

The government is supposed to draw from the kitty to cushion motorists whenever there are major shocks in the pricing of petroleum products.

The government has, however, in the past said the collections from the levy are not adequate to support stabilisation for several pricing cycles and has had to source funds from outside the kitty to suppress major hikes in cost of fuel as was the case during former President Uhuru Kenyatta’s last year in office.

In the stabilisation plan, the oil marketers forego their margins at the pump to keep the prices low. They are later compensated by the government, which draws funds from the PDL.

But marketers have complained over delays in reimbursing their funds.