Economy

Petrol subsidy reinstated after State House call

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

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Summary

  • The energy regulator Thursday reinstated fuel subsidy after State House intervention, cutting pump prices for the first time since June.
  • The Energy and Petroleum Regulatory Authority (Epra) cut petrol and diesel prices by Sh5 per litre to Sh129.72 and Sh110.60 respectively in Nairobi while kerosene dropped Sh7.28 to Sh103.54.
  • Officials from the Ministry of Petroleum and Epra had sought the intervention of State House for a return of the subsidy, which was dropped last month, amid fears that rising crude oil costs would push pump prices to a historic high.

The energy regulator Thursday reinstated fuel subsidy after State House intervention, cutting pump prices for the first time since June.

The Energy and Petroleum Regulatory Authority (Epra) cut petrol and diesel prices by Sh5 per litre to Sh129.72 and Sh110.60 respectively in Nairobi while kerosene dropped Sh7.28 to Sh103.54.

Officials from the Ministry of Petroleum and Epra had sought the intervention of State House for a return of the subsidy, which was dropped last month, amid fears that rising crude oil costs would push pump prices to a historic high.

This led to reinstatement of Sh6.86 per litre subsidy on diesel, Sh6.13 per litre on petrol and Sh4.63 on kerosene, helping cut pump prices that have emerged as a headache to the State.

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.

“Despite the increase in landed costs, the applicable pump prices for this cycle have been reduced. The government will utilise the Petroleum Development Levy to cushion consumers from the otherwise high prices,” Epra said Thursday.

Simmering public anger over high cost of fuel, which has caught the attention of top politicians and the National Intelligence Service (NIS), prompted a flurry of meetings involving top officials at the Treasury, the Ministry of Energy and Epra ahead of the review.

Oil prices hit $83.65 a barrel, which had pointed to more pain at the pump if the State did not sustain the subsidy. Yesterday, Parliament gave backing to a Bill that seeks to cut levies and taxes embedded in fuel prices in what is expected to cut a further Sh12 per litre of petrol.

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 starts.

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.

The National Assembly’s Finance Committee wants the Treasury to use the Sh18.1 billion that was diverted to the Chinese firm operating SGR to reinstate the fuel subsidy.

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.

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. Kenya’s inflation hit a 19-month high in September at 6.91 percent on the back of the rising cost of basic products such as fuel, food and electricity.

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 Covid-19.