Economy

Fuel prices to hit highest in Kenya's history without subsidy

fuel

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

  • Estimates from the oil marketers indicate that fuel prices could increase by up to Sh40 a litre in the absence of a subsidy, pushing the cost of the petrol and diesel to Sh130 and Sh130 respectively in Nairobi.
  • The State partially withdrew the fuel subsidy in March imposed last year, sending diesel and petrol prices to an all-time high in the first increase since October.
  • The weakened subsidy plan pushed the energy regulator to increase diesel and petrol prices by Sh5 a litre to Sh115.60 and Sh134.72 respectively in its monthly review on Monday.

Petrol prices will from midnight increase to the highest level in Kenya’s history unless the State subsidises the rising crude oil costs, which may further stoke public outrage over the high cost of living.

Estimates from the oil marketers indicate that fuel prices could increase by up to Sh40 a litre in the absence of a subsidy, pushing the cost of petrol and diesel to Sh174.72 and Sh155.60 respectively in Nairobi — which will be the highest in Kenya’s history.

But the State could offer a partial subsidy similar to last month to ease the jump in fuel prices amid the push by oil dealers to scrap the State’s aid that has been blamed for the fuel shortage that has persisted for the past weeks.

“Without the subsidy, the prices are likely to jump by up to Sh40 a litre based on the cost of cargos that were shipped this month,” said a CEO of a top marketer who sought anonymity for fear of State reprisals.

The State partially withdrew the fuel subsidy in March imposed last year, sending diesel and petrol prices to an all-time high in the first increase since October.

The weakened subsidy plan pushed the energy regulator to increase diesel and petrol prices by Sh5 a litre to Sh115.60 and Sh134.72 respectively in its monthly review on Monday.

Without the subsidy, a litre of super would have increased to Sh155.11 while diesel would have retailed at Sh143.16 per litre of diesel. The Sh40 rise will push diesel prices to Sh155 a litre and petrol at Sh174, tightening the squeeze on consumers.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in Kenya. The fear of a prices increase comes as the State seeks solutions to the ongoing fuel shortage.

The fuel shortage has returned to haunt motorists as uncertainties over the State-backed subsidy ahead of the monthly review of pump prices persist.

Outlets outside Nairobi started experiencing shortages at the weekend, with the scarcity being felt in the capital from Wednesday.

Oil dealers linked the shortages to a lack of clarity on the fuel subsidy that the State introduced last April to stabilise prices amid suspicion of hoarding.

Delays in subsidies have pushed up prices in the wholesale market where oil majors resell fuel to the smaller independent fuel retailers, who control 40 percent of the market.

This has seen the small retailers hesitate to buy the costly fuel, with increased supply of oil majors unable to plug the deficit.

The oil majors have also been cautious to increase supply, uncertain about whether the State would compensate them for fuel not used to calculate the monthly price adjustments, which takes effect on April 15 and will stay in place for one month.

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