The State has reinstated a small subsidy to stabilise retail fuel prices for the month to September after collecting nearly Sh4 billion from motorists amid public uproar over the surge in the cost of diesel and petrol.
Oil marketers will be paid at least Sh400 million to prevent a further increase in the cost of diesel and kerosene in the period to September.
Without the payment, diesel prices would have increased by Sh2.04 a litre while kerosene would have risen by Sh2.86 a litre.
The State failed to offer the subsidy for the two months to August 14 after the fund or the petroleum development levy (PDL) that is used to stabilise retail fuel prices got depleted.
This exposed consumers to volatile global shifts that saw the cost of a litre of petrol and a litre of diesel jump by Sh8.99 and Sh8.67, respectively, last month.
The State raised Sh26.37 billion from the petroleum development levy, which is charged at the rate of Sh5.40 per litre of fuel, in the year to June 2025, translating to an average monthly collection of Sh2.1 billion.
The subsidy kept diesel and kerosene prices unchanged despite higher shipment costs.
“The average landed cost of imported super petrol decreased by 0.73 percent from Sh81,201 ($628.30) per cubic metre in June 2025 to Sh80,608 ($623.71) per cubic metre in July 2025. Diesel increased by 3.08 percent from Sh79,688 ($616.59) per cubic metre to Sh82,530 ($638.58),” the Energy and Petroleum Regulatory Authority (Epra) said in a statement last week.
“Kerosene increased by 3.2 percent from Sh78,647 ($608.54) per cubic metre to Sh81,165 ($628.02) over the same period.”
Of the Sh26.37 billion that the State raised from the petroleum development levy in the year to June 2025, only Sh13.68 billion was used to subsidise pump prices in the period.
This indicates that nearly half of the fund was consumed by other items, leading to its depletion.
The subsidy has ranged between Sh2.50 and Sh6.30 per litre monthly.
Petroleum development levy collections are mainly for cushioning consumers against costly fuel. The money is also used to fund other items in the petroleum sector, such as infrastructure upgrades and undertaking research in line with the Petroleum Development Act.
The State has previously diverted cash from the levy to the railways sector, notably in 2021 when Sh18 billion was illegally used to pay the Chinese firm operating the standard gauge railway.
Without the subsidy, fuel prices last month jumped highest in two years in the wake of the Israel-Iran war that sparked a rise in global petroleum costs.
Fuel prices make a big contribution to inflation as Kenya relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.
Inflation in July rose to its highest level since August 2024 to 4.1 percent from 3.8 percent on the back of higher fuel prices.
The State has previously been forced to tap other funds to cushion consumers and ease public anger over the high cost of living.
For example, the government tapped Sh58 billion from the Railway Development Fund to subsidise pump prices in the year that ended June 2024, pointing to a depleted fund.
The Auditor-General, Nancy Gathungu, flagged the decision because it was a breach of the law.
Consumers pay seven levies and two taxes for every litre of petrol, diesel and kerosene they buy. The highest is the Roads Maintenance Levy (RML), which is charged at Sh25 per litre of petrol and diesel. The levy was hiked by Sh7 in stabilising fuel prices in April 2021 in a bid to shield consumers against the costly fuel and its effect on inflation.
The government had cleared all arrears due to oil marketers for stabilising fuel prices, implying that the reinstatement of the subsidy will commence after two months on a clean slate.
“The government has been paying oil marketing companies and is not carrying any balances due to the industry as of Thursday,” a CEO of a top oil marketer told the Business Daily.
