Oil dealers to get Sh24.5 billion as fuel prices are retained

Pump attendant fueling a vehicle at Total Petroleum Station on Kimathi Street in Nairobi on Wednesday, April 14, 2021. PHOTO | DENNIS ONSONGO | NMG

The State will pay oil marketers an estimated Sh24 billion in the largest monthly fuel subsidy to keep pump prices unchanged and ease public anger over the rising cost of living.

Marketers will be fully compensated for their margins of Sh54.91 per litre of super petrol, Sh66.17 for diesel and Sh74.17 for kerosene—making it the largest payout since Kenya started subsiding retail prices in April last year following a surge in crude oil prices.

This latest subsidy allowed the energy regulator to Sunday keep diesel and petrol prices unchanged at Sh140 and Sh159.12 respectively in Nairobi.

Without the subsidy, motorists would have paid a historic high of Sh214.03 per litre of petrol and Sh206.17 for diesel in what could have stoked pressure on inflation.

The subsidy has, however, failed to stem inflation now at 8.3 percent outside the government's preferred band of 2.5-7.5 percent on soaring food prices.

The estimated Sh24.5 billion subsidy is based on the current consumption volumes, with diesel taking the largest chunk of Sh14.59 billion and Sh9.084 billion for super. Compensation for kerosene is estimated at Sh835 million.

The decision to keep prices unchanged will add to the marketers’ cash flow problems following delays in getting compensation leading to arrears of Sh39.56 billion.

A jump in pump prices would have prompted fresh public outrage in the first month in office for President Uhuru Kenyatta’s successor.

Opposition leader Raila Odinga and Deputy President William Ruto are locked in a tight race to succeed Mr Kenyatta with final results expected to be released today.

The next president will have a full in-tray of economic and political woes to solve when he assumes office.

Inflation is surging, jobs are scarce and a splurge on public spending by the Jubilee administration means that over 60 percent of taxes are needed to settle loans.

It will also make a decision on whether to maintain the subsidy despite Kenya informing the International Monetary Fund (IMF) of its intention to scrap the programme from October.

“The government will utilise the petroleum development levy to cushion consumers from the otherwise high prices,” Epra director General Daniel Kiptoo said on Sunday in reference to the August 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.

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 climbed to a 61-month high in July at 8.3 percent to 7.9 percent in July, squeezing household budgets and demand for goods and services.

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