How petrol, diesel prices will rise in Friday review

Motorists will from Friday pay an additional Sh3.32 for a litre of petrol and Sh2.57 for a litre of diesel, putting pressure on household budgets for the second month in a row.

A brief sent to the Petroleum Ministry by the energy regulator and seen by the Business Daily indicates that the pump price of super petrol will increase to Sh103.80 per litre in Nairobi from the current Sh100.48, representing a rise of 3.3

Motorists in Nairobi will pay Sh94.44 for a litre of diesel, up from Sh91.87, wiping out the entire Sh23 a litre drop in fuel costs that followed the Covid-19 pandemic, which had cut global demand for energy on reduced economic activities.

The Petroleum ministry linked the expensive fuel to the recovery in crude oil prices, which increased the cost of imported refined fuel.

The increase in the petrol levy to Sh5.40 from Sh0.40, representing a 1,250 percent rise, has also helped to drive pump prices.

The levy was quietly introduced on July 10 through a gazette notice and will see the State collect about Sh2 billion monthly from fuel consumers.

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, suggesting additional pressure on the cost of living measure.

The Petroleum Ministry reckons the fuel price adjustments, which take effects on Friday, is based on average crude prices of $42 a barrel.

The current fuel prices are based on the crude cost of $36.34 in June, representing an increase from $23.55 posted in May and $17.64 April.

This means that a litre of diesel will have gained Sh19.87 since May while petrol has increased by Sh16.10.

Crude oil prices plunged after a fallout between Saudi Arabia and Russia over production cuts in the wake of the global Covid-19 pandemic, which has also reduced demand for energy on slow economic activities.

But reduced tension between China and Saudi Arabia, backed by increased road traffic in some of the world’s major cities in June, has sparked a rally in crude oil prices.

Last month, fuel prices jumped by the biggest margin since 2007 when official data on pump costs are available.

Producers of services such as electricity and manufactured goods are expected to factor in the higher cost of petroleum, unleashing pricing pressure across the economy with ramifications on the cost of living measure.

In Kenya, for instance, the majority of the population relies on kerosene and gas 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.

Inflation fell to 4.36 percent in July from 4.59 percent a month earlier, largely driven by cheap fuel and food prices.

It is not clear the price level the Petroleum Cabinet Secretary will require to give consumers a subsidy under a fund that was created last month.

The subsidy will be supported by billions of shillings that will be raised from fuel consumers through the Petroleum Development Levy, which was increased to the Sh5.40 a litre of fuel.

Under the scheme, oil marketers will be paid the equivalent of the subsidy from the levy, which was first created in 1991 and will for first time be used to stabilise prices.

The ministry reckons that the fund — which is modelled as a hedging tool — will ensure local firms and motorists do not suffer steep price increases caused by global market changes.

Petroleum Principal Secretary Andrew Kamau told the Business Daily that regulations guiding the subsidy fund are being developed, adding that the State could consider lowering fuel levies when fuel prices jump.

“We could have hedged through an investment bank but that means we will still pay even if the prices don’t increase just like insurance. We can adjust the levies accordingly and chip in with the fund or agree to pay a certain portion of the import bill with the marketers to reflect our desired pricing to the consumers,” Mr Kamau said.