Petrol, diesel hit historic high after subsidy removal


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

Fuel prices have risen to the highest level in Kenya’s history after the State discontinued a subsidy scheme introduced in April to ease public outrage over the high cost of living.

The energy regulator — Energy and Petroleum Regulatory Authority (Epra) — removed subsidies of Sh7.10 on petrol, Sh9.90 on diesel and Sh11.36 on kerosene that applied on the prices of fuel sold in the month to September 14.

This increased the price of petrol by Sh7.58 a litre in Nairobi to Sh134.72 while diesel has jumped Sh7.94 to Sh115.6 a litre — the highest in Kenya’s history.

The State has since March offered consumers of diesel and kerosene a subsidy, with those using petrol enjoying the benefit with the exemption of the May review.

This saw the regulator keep diesel and kerosene prices unchanged since April at Sh107.66 and Sh97.85 a litre respectively on fears an upward review could fuel public anger. Petrol had remained unchanged at Sh127.14 since June.

Expensive fuel could unleash pricing pressure across the economy and have ramifications on the cost of living measure.

“The stabilisation process for the pump prices has not been effected in the current pricing cycle,” Daniel Kiptoo, the Epra director-general, said Tuesday.

The stabilisation came from a cut on the oil marketers’ margin, which has been regulated by the State since 2010, with the dealers receiving compensation estimated at more than Sh3 billion.

The subsidy scheme was 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.

The State is tapping into the fund despite the absence of regulations to manage it, having collected more than Sh18 billion from motorists since July last year. The subsidy saved consumers Sh24.44 per litre of diesel, Sh15.11 per litre of petrol and Sh30.90 per litre of kerosene in the months it has been in place.

The jump in fuel prices is also partly linked to costly crude attributed to signs of demand growth as the global economy recovers from the Covid-19 economic

fallout. The current pump prices are based on the barrel at $72.34, up from $66.70 previously, and an estimated $42.35 a year ago.

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

Kenya was hit hard at the onset by the pandemic, but its economy has been picking up after posting a contraction of 0.3 percent in 2020.

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 energy regulator raised foreign exchange and fuel adjustment surcharges it levies in March electricity bills, hitting household budgets.

In Kenya, the majority of households rely on kerosene and LPG for lighting and cooking, making crude price a key determinant of the rate of inflation.

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.

Crude prices in June soared to levels last seen three years ago, driven higher by the production cuts by the Opec nations and the mass rollout of Covid-19 vaccines in many high-income countries.

While demand for oil is still lower than normal, there are hopes of a speedier than expected economic recovery as vaccines are rolled out.

Crude prices plunged after a fallout between Saudi Arabia and Russia over production cuts in the wake of the Covid-19, which has also reduced demand for energy on slow economic activities.

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