Economy

Fuel subsidy fund almost depleted, says Treasury

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Treasury Principal Secretary Julius Muia. FILE PHOTO | NMG

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Summary

  • The Treasury rejected a Sh5 billion request from the Petroleum Ministry to extend fuel subsidy beyond September, pushing petrol and diesel prices to a historic high.
  • Treasury Principal Julius Muia told Parliament that it could not honour the request for the subsidy due to lack of cash in the kitty that had cushioned consumers from increased fuel prices from April to this month.

The Treasury rejected a Sh5 billion request from the Petroleum Ministry to extend fuel subsidy beyond September, pushing petrol and diesel prices to a historic high.

Treasury Principal Julius Muia told Parliament that it could not honour the request for the subsidy due to lack of cash in the kitty that had cushioned consumers from increased fuel prices from April to this month.

The State paid oil dealers Sh8.64 billion in compensation for the five months that fuel prices remained unchanged from the kitty that is estimated to hold more than Sh15 billion.

Kenya discontinued the subsidy in the monthly review to October 14, a move that saw petrol prices increase by Sh7.58 a litre in Nairobi to Sh134.72 while diesel jumped Sh7.94 to Sh115.6 a litre — the highest in Kenya’s history.

“We received a request for Sh5 billion in August. That request was meant for stabilisation of petroleum prices for the month of September but unfortunately the fund does not have that money and consequently that request has not been honoured,” Mr Muia told the National Assembly Committee on Finance and National Planning yesterday.

Motorists have been contributing Sh5.40 per litre to the subsidy scheme since July last year after the Petroleum Development Levy was increased from Sh0.40, representing a 1,250 percent rise.

Mr Muia added that the kitty had a balance of Sh3.6 billion, raising questions on expenditure of the billions of shillings collected through the levy since July last year

The Treasury administers the Petroleum Development Levy on behalf of the Ministry of Petroleum and Mining.

The subsidy had kept diesel and kerosene prices unchanged from the March review to this month at Sh107.66 and Sh97.85 per litre respectively, while petrol remained unchanged at Sh127.14 per litre since the June review.

Removal of the subsidy has sparked fears of more pain at the pump at the back of the global rally in crude prices that hit a three-year high on Tuesday, signalling more pain at the pump for consumers and heightened pressure on the government to defuse public outrage over expensive fuel.

Oil prices struck $80 (Sh8,800) a barrel on Tuesday after a sixth consecutive day of climb, a market report by Reuters showed, boosted by a tighter supply and firm demand outlook although power shortages in China that hit factory output tempered the rally.

Mr Muia added the Treasury disbursed a total of Sh23.6 billion in the financial year 2020/21 out of which Sh1 billion went to stabilisation of pump prices as requested by the Petroleum Ministry.

The Treasury further released Sh2.2 billion to the Energy Ministry and the balance of Sh18.2 billion was disbursed to the Infrastructure Ministry following request.

“The requests from Ministries of Petroleum, Energy and Infrastructure either addressed upstream, mid-stream or downstream development of petroleum,” he said.

The Treasury warned Parliament against any attempt to remove or cut the rates of taxes and levies imposed on petroleum products, saying they will have adverse knock-on effects on the overall national budget.

“If the alteration is by way of amendment of a tax law, the amendment Bill will inevitably lead to a supplementary Appropriations Bill that lowers the national government expenditure programme, which in turn may affect the national government’s borrowing plan or debt servicing plan based on a lower tax collection that a change in the tax rate entails,” Mr Muia told MPs.