Economy

President orders setting up of long term fuel subsidy

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

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Summary

  • President Uhuru Kenyatta Wednesday directed the Treasury and the Petroleum ministry to set up a long-term fuel subsidy scheme to cushion motorists from high pump prices.
  • The two ministries have two months to develop guidelines on how the State will permanently keep fuel prices low, despite the continued increase in global prices of crude.

President Uhuru Kenyatta Wednesday directed the Treasury and the Petroleum ministry to set up a long-term fuel subsidy scheme to cushion motorists from high pump prices.

The two ministries have two months to develop guidelines on how the State will permanently keep fuel prices low, despite the continued increase in global prices of crude.

Global prices for crude have hit record highs in recent weeks, fuelling fears of a spike at the pump in the absence of stabilisation funds.

Fuel prices hit a record high last month, with a litre of petrol going for Sh134.72 in Nairobi while diesel jumped to Sh115.6 a litre, after the State discontinued a subsidy scheme introduced in April to ease public outrage over the high cost of living.

“The Ministry of Petroleum and Mining, jointly with the National Treasury, shall develop by 24th December 2021, a framework for stabilisation of petroleum prices, so as to cushion Kenyans against the turbulence caused by the volatility in fuel prices,” President Kenyatta said yesterday.

Crude prices hit $85.45 a barrel on Tuesday, on growing demand as the global economy recovers from the Covid-19 economic. The rally in crude prices has shifted focus on Kenya’s efforts to cushion motorists and households from costly fuel at a time the Treasury diverted funds meant to keep pump prices.

Last month, the Treasury diverted Sh18.1 billion fuel subsidy cash to the Chinese firm operating the standard gauge railway (SGR).

The Treasury’s decision, which was in breach of regulations on the use of the subsidy scheme, set the stage for pump prices to hit a record high in the absence of cash to stabilise them.

Kenya had used the subsidy since April to defuse public outrage over the high cost of living at a time households, motorists and businesses were reeling from the economic meltdown from the coronavirus pandemic.

The energy regulator — Energy and Petroleum Regulatory Authority (Epra) — had kept 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

The subsidy was reintroduced in the monthly review lapsing on November 14, with the cost of super petrol and diesel falling to Sh129.72 billion and Sh110.60 respectively.

Parliament is set to debate and approve reduction in taxes charged on petroleum products in a bid to keep fuel prices low.