Petroleum levy collection falls Sh593m on costly fuel

Fuel station

Vehicles line up to fuel at a petrol station in Nairobi on July 1, 2023. 

Photo credit: Francis Nderitu | Nation Media Group

The Petroleum Development Levy collections dipped by more than Sh500 million in the six months to December last year, due to sky-high pump prices that hit demand.

The Petroleum Development Levy Act states that the fund shall be used to develop the oil industry, including stabilising pump prices in instances of spikes due to high landed costs above a threshold determined by the Energy and Petroleum Regulatory Authority.

Consumers pay Sh5.40 for every litre of super petrol and diesel and Sh0.40 per litre of kerosene, with the money being used to build a kitty, which is meant to subsidise pump prices skyrocket.

An analysis of official consumption figures from the energy regulator shows that collections fell to Sh12.18 billion in the period compared to Sh12.78 billion in the same period of 2022—marking a slump of Sh593.94 million.

The fall was driven by record high prices where a litre of fuel crossed the Sh200- a litre mark, forcing consumption of kerosene, super petrol, and diesel fell 39.45 percent, 4.76 percent and 4.46 percent, respectively.

The drop in the collections between July and December last year signals that the government is likely to miss out on the targeted amount in the financial year ending this month.

However, the low collections are likely to have a minimal impact given that strong shilling and falling prices of refined fuel globally have cut pump prices locally, removing the need to subsidise fuel.

Based on the data from the Energy and Petroleum Regulatory, petroleum levy collections from kerosene fell by more than half to Sh10.37 million between July and December last year, compared to Sh21.85 million in the same period a year earlier.

The fund was heavily used to cushion consumers from costly fuel between April 2021 and last year, with oil marketers pocketing an estimated Sh124.07 billion for keeping pump prices low. A further Sh45.8 billion was converted into a three-year bond in May last year.

The scheme was discontinued last year amid pressure from the International Monetary Fund and struggles by the Exchequer to pay oil marketers.

Currently, the government has used consumers of diesel to cross-subsidise super petrol and kerosene users in a bid to ease pressure on the kitty.

The cross-subsidy has been subject to legal suits on grounds that it is unfair and cushions users of one grade of fuel at the expense of others.

However, billions from the kitty have been illegally used in the past, like the Sh18 billion that was tapped in 2021 to fund operations of the standard gauge railway.

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