Economy

Disquiet as State fails to pay oil subsidy billions

oil

Pump attendant fueling a vehicle at Total Petroleum Station on Kimathi Street in Nairobi on Wednesday, April 14, 2021. PHOTO | DENNIS ONSONGO | NMG

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Summary

  • The Business Daily has learnt that oil marketers are grappling with delays in the compensation after they took a cut for keeping pump prices low.
  • A number of chief executives who requested anonymity said that the government has not paid a single cent for the December-January review that lapses today in addition to other pending payments for November last year.
  • Documents seen by Business Daily shows that oil dealers were paid Sh1.753 billion for two shipments in the November-December cycle while two others are pending.

The government has defaulted on fuel subsidy billions that continue to be paid under a cloud of secrecy, sparking disquiet among the oil marketing companies ahead of the fresh pricing review to be effected from midnight.

The Business Daily has learnt that oil marketers are grappling with delays in the compensation after they took a cut for keeping pump prices low.

A number of chief executives who requested anonymity said that the government has not paid a single cent for the December-January review that lapses today in addition to other pending payments for November last year.

Sources at the Oil Marketers Association of Kenya (Omak), the industry lobby, have revealed that they now want the government to pay interest on the delayed funds, in what will come with another cost to taxpayers.

Documents seen by Business Daily shows that oil dealers were paid Sh1.753 billion for two shipments in the November-December cycle while two others are pending.

The delays have pushed marketers into cash-flow hitches especially the independent firms who tap bank loans to pay for the fuel and foot distribution costs.

Industry regulator Energy and Petroleum Regulatory Authority (Epra) has since last year cut margins for the oil marketers to keep pump prices unchanged and contain public outrage. The State uses funds from a fuel subsidy to compensate dealers.

Epra will today announce a new pricing schedule for the month to February 14 where dealers look set to take more hit if the State opts to cut their margins and keep prices unchanged.

“We are in a crisis. We were partially paid for the November-December cycle and nothing has been paid for the review ending today,” a CEO said.

“If the government delays payment by over three months then that means marketers are in serious trouble, some of the financing comes from banks; do you think they care if you have been paid or not?”

Estimates based on the monthly consumption figures show that compensation due to oil marketers in the November-December cycle was Sh5.86 billion while that due for the cycle lapsing tomorrow is Sh8.12 billion.

Figures show that Kenya uses 165.45 million litres of super petrol every month, 220.57 million litres for diesel and 11.26 million litres for kerosene.

The industry regulator cut margins for oil dealers to zero in the November-December and December-January monthly reviews, saying it will compensate marketers at Sh18.32 per litre of Super, Sh21.89 per litre of diesel and Sh23.53 per litre of kerosene.

The subsidy scheme is supported by billions of shillings raised from fuel consumers through the Petroleum Development Levy, which was increased to Sh5.40 a litre in July 2020 from Sh0.40, representing a 1,250 percent rise.

Delays in paying oil marketers come against the backdrop of revelations that Kenya diverted billions of shillings meant to compensate the dealers last year.

The Treasury diverted Sh18.1 billion disbursed to the Transport and Infrastructure ministry to defray the Standard Gauge Railway costs in September last year, leading to discontinuation of the scheme and prompting pump prices to hit record highs.

The Treasury declined to release funds for fuel stabilisation in the month to October 14, a move that saw a litre of Super rise to Sh134.72 while diesel jumped to Sh115.6 a litre in Nairobi, the highest in Kenya’s history.

Parliament directed the Treasury to revert the funds and ensure the continuation of the subsidy scheme that was started last year to contain rising public anger over the high cost of living.

The National Assembly’s Finance Committee said the Treasury abused the Petroleum Development Levy Fund by supporting payments such as SGR in breach of the law.

The law guiding the levy demands that it support a subsidy when fuel prices rocket and infrastructure upgrades in the energy and petroleum sectors.

“The National Treasury should immediately upon adoption of this report start the process of reverting the Sh18.1 billion that was misapplied back to the Petroleum Development Levy Fund for purposes of stabilisation of fuel prices,” the committee said in its report in October last year.

Epra, however, reinstated the fuel subsidy in the review to November 14 amid growing concerns on the sustainability of the subsidy scheme.

The State remains mum amid the increasing disgruntlement among oil marketers with Treasury and Ministry of Petroleum declining to comment on the matter.

“Please refer this to PS Andrew Kamau, Ministry of Mining and Petroleum,” Treasury Principal Secretary Julius Muia said in responses to Business Daily.

The global rally in crude prices has added to the pain of marketers who have been compelled to sell fuel at prices that do not match the increase in costs of shipping and distributing the commodity.

The law bars marketers from selling fuel at prices higher than the Epra approvals, leaving them to grapple with stagnant returns despite the rise in costs.

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