Editorials

EDITORIAL: Consumers need to know how fuel subsidy will work

munyes

Petroleum Cabinet Secretary John Munyes. FILE PHOTO | NMG

Summary

  • Maintaining tight control of fuel prices will definitely help offset commodity price fluctuations, expand energy access, protect poor households' incomes, and spur industrial growth.
  • But leaving the decision of determining the amount of subsidy the consumers are expected to get to the Petroleum Cabinet Secretary and a few government officials, without putting in place a threshold and providing details on how the subsidy scheme will work, is problematic.

The Petroleum Cabinet Secretary had been given new powers to slash fuel prices when margins rise sharply and cushion consumers from a subsidy fund boosted by the recent increase of the petrol levy.

Maintaining tight control of fuel prices will definitely help offset commodity price fluctuations, expand energy access, protect poor households' incomes, and spur industrial growth.

But leaving the decision of determining the amount of subsidy the consumers are expected to get to the Petroleum Cabinet Secretary and a few government officials, without putting in place a threshold and providing details on how the subsidy scheme will work, is problematic.

At what fuel price or a percentage increase in petroleum prices will consumers get a relief?

The petrol levy was increased to Sh5.40 from Sh0.40, and already motorists are feeling the pinch as it contributed to higher pump prices last month.

In July, the Energy and Petroleum Regulatory Authority linked the expensive fuel to the recovery in crude oil prices, which increased the cost of imported refined fuel, and the rise in the petrol levy to Sh5.40 from Sh0.40, representing a 1,250 percent raise. The authorities owe consumers a clear explanation about how the fund will work, given that they are also contributing to it, including when to expect the subsidy. Will it be when fuel crosses the Sh90 mark a litre or when the percentage increase is at a record high?

Subsidies are just one way governments hand out money to the energy industry.

Some countries do not directly subsidise the retail price of oil, but they offer tax breaks to fossil-fuel and renewable-energy companies.

For Kenya, it is looking to collect Sh2 billion monthly from consumers and the subsidy will cushion particularly diesel users. Disel is used widely in the economy.

The government may be aiming to artificially lower prices on fuel through the subsidy fund, also seen as a hedging tool, but critics also argue that it is unnecessary.

Perhaps the country should instead invest in larger storage facilities to allow the importation of large cargo in times of lower prices and enjoy price stability instead of consumers having to pay more at the pump.