Economy

Oil dealers get billions to keep fuel prices unchanged

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An attendant at a fuel station in Nairobi. FILE PHOTO | NMG

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Summary

  • Marketers will fully be compensated for their margins of Sh12.39 per litre of super petrol and Sh12.36 for diesel.
  • This allowed the energy regulator to keep diesel and petrol prices unchanged at Sh110.60 and Sh129.72 respectively.

The State will pay marketers billions of shillings through a fuel subsidy to keep pump prices unchanged and ease public anger over the rising cost of living.

Marketers will fully be compensated for their margins of Sh12.39 per litre of super petrol and Sh12.36 for diesel.

This allowed the energy regulator to keep diesel and petrol prices unchanged at Sh110.60 and Sh129.72 respectively.

Without the subsidy, motorists would have paid a historic high of Sh143.48 per litre of petrol and Sh126.28 for diesel in what could have stoked pressure on inflation.

“Despite the increase in the landed costs, the applicable pump prices for this cycle have been maintained as the ones in the previous cycle. The government will use the Petroleum Development Levy to cushion consumers from the otherwise high prices,” Daniel Kiptoo, the Epra director-general, said in the notice yesterday.

The landed costs of super rose to Sh67.35 a litre from the previous Sh61.39 while diesel rose Sh62.42 from Sh55.64.

The energy regulator last month reinstated the fuel subsidy after State House intervention, cutting monthly pump prices that lasted to yesterday for the first time since June.

The Treasury earlier revealed that it had exhausted the Sh31 billion set aside to subsidise fuel after it diverted Sh18.1 billion to support standard gauge railway (SGR) operations under Chinese operators.

Policy makers and politicians are taking notice of the online campaigns by ordinary Kenyans concerned about reduced cash flow, fewer employment opportunities, and rising cost of living as campaigning for next year’s election gathers pace.

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 last year from Sh0.40, representing a 1,250 percent rise.

The fund is meant to cushion consumers from volatility in fuel prices but has also seen motorists lose out when paying the Sh5.40 for a litre at the pump.

Oil prices hit $82.87 a barrel last week, a Reuters report showed, pointing to more pain at the pump given the current prices are based on $69.73 per barrel for October.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum.

The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.

Kenya’s inflation retreated from a 19-month high in September at 6.91 percent to 6.45 percent in October, partly due to cut in fuel prices.