Economy

Oil dealers get Sh1bn for frozen fuel prices

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

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Summary

  • Oil marketers got Sh1.075 billion from the Treasury as compensation for keeping fuel prices unchanged and defuse public outrage.
  • The Treasury gave the marketers about Sh880 million after the energy regulator opted to cut suppliers’ sales margin by up to 35 percent or Sh4.44 a litre to keep fuel prices unchanged.

Oil marketers got Sh1.075 billion from the Treasury as compensation for keeping fuel prices unchanged and defuse public outrage over a monthly review that would have pushed costs to a historic high.

The Treasury gave the marketers about Sh880 million after the energy regulator opted to cut suppliers’ sales margin by up to 35 percent or Sh4.44 a litre to keep fuel prices unchanged in the month to May 14.

The dealers will also be offered another compensation of Sh159 million for taking cuts on their diesel and Kerosene margins of Sh0.64 and Sh3.43 respectively on monthly caps ending June 14.

The fear of the upward review fuelling public anger, which caught the attention of State House and the National Intelligence Service (NIS), prompted the State to manipulate the prices, with the promise of compensating the marketers.

“The money was drawn from the Petroleum Development Fund, it is the one that Treasury used to compensate marketers,” said a top official at the Energy and Petroleum Regulatory Authority (Epra) who requested not to be identified given the sensitivity of the matter.

The withdrawal of the money from the fund would amount to a legal breach because the regulations to allow use of cash from the kitty are not approved.

The fund has been built by billions of shillings that have been 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 diesel consumers from volatility and offer subsidies when prices rise by large margins.

The State has raised nearly Sh15 billion from the levy with delays in getting approval for its regulations slowing the subsidy plan. The Treasury and the Energy ministry declined to comment on the source of the compensation, directing this newspaper to Epra.

The marketers’ margin for super petrol was cut from Sh12.39 a litre to Sh7.95 over the month to May 14, representing a cut of Sh4.44.

This was fully reinstated in the review running to June 14.

In April, the diesel markup was cut by Sh2.28 to Sh10.08 a litre while that of Kerosene has been lowered to Sh8.89 from Sh12.36. The State partially restored the margins for diesel to Sh11.72 a litre from the normal Sh12.36.

It marked the first time the government kept petrol prices unchanged since it started a monthly review of retail fuel prices in 2010 after they shot upwards, driving up the cost of living.

It is the second time for diesel over the period given the prices were unchanged in April 2018.

Kenyans on social media have recently raised concern over reduced cash flow, fewer employment opportunities and the mounting public debt, which triggered a petition to the International Monetary Fund (IMF) to stop giving the country more loans.

The petition from the Kenyans on Twitter - also known as KOT – came days after the IMF approved a $2.34 billion (Sh250 billion) loan on April 2 to help the country respond to the Covid-19 pandemic and address its debt vulnerabilities.

Kenya was hit hard at the onset by the pandemic, but its economy has been picking up after posting a slight contraction of 0.1 percent in 2020, the IMF said.

Policy makers and politicians are taking notice of the online campaigns by ordinary Kenyans concerned about how the State coffers are handled as politicians start campaigning for next year’s elections. If the State had failed to cut the suppliers’ margin over the two months, petrol prices would have increased to Sh130.83 a litre from the current Sh126.37.

Diesel would be retailing at Sh110.58 a litre from the current Sh107.66 while Kerosene would be up Sh6.90 over the same period.

Recent price increases sparked anger among Kenyans, with the costly fuel unleashing pricing pressure across the economy and having ramifications on the cost of living measure. They have also shifted the spotlight on taxation of petroleum products, with Kenyans in border towns reportedly seeking cheaper fuel in the neighbouring countries of Tanzania and Uganda.

There are seven levies and two taxes that Epra takes into account when setting fuel prices, which have been blamed for the high cost of petroleum products.

The levies account for 48 percent of current petrol costs.

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.