MPs raise concern as fuel subsidy kitty runs empty

Monday, February 21st, 2022 00:25 | By

Herald Aloo

A parliamentary committee has warned that the country’s overall inflation rate risks surpassing the recommended upper limit of 7.5 per cent if the fuel subsidy does not hold longer, signalling the already high cost of living could worsen.

National Assembly’s Budget and Appropriations Committee, said the uncertainty surrounding the utilisation of fuel subsidy kitty amid economic hardship and a global surge of crude oil prices, is spelling doom for many households and businesses.

“The possibility of a rise in domestic food prices due to weather-related shocks, an increase in fuel prices as well as an end of the EPRA fuel subsidy is likely to push inflation towards the upper bound,” the committee stated in the 2022/23 Budget Policy Statement (BPS).

Kenya introduced the fuel subsidy programme, which draws funds from Petroleum Development Fund to stabilise high global fuel prices caused by supply-demand imbalance that had a ripple effect on essential commodities. Without the subsidy, super petrol and diesel could be retailing more by about Sh15 and Sh23 per litre, respectively.

Now, the kitty is fast depleting, remaining with only Sh1.2 billion, a fraction of what is needed to cushion oil marketers  next month, according to the estimates given by Petroleum Principal Secretary Andrew Kamau when he appeared before the National Assembly’s Energy Committee last week. “The huge difference between stabilised prices and the actual prices compared to the collections from the PDF present a challenge to its continued use,” he told the energy committee.

Fuel amount

Budget committee recommended Sh5 billion to supplement the fuel subsidy, which is Sh3 billion less than what is needed monthly to compensate oil marketers. The programme can require up to Sh8 billion in a month to keep it running depending on the fuel amount consumed, according to Kamau.

The monthly Consumer Price Index (CPI) released by Kenya National Bureau of Statistics (KNBS) indicates that the country’s overall inflation rate by January 31 eased to 5.39 per cent from 6.9 per cent in September 2021.

BAC has already raised a red flag that the reduced fuel-cost charge passed by Kenya Power to the commercial users was not enough and unattainable in the long term, indicating that the high cost of production and knock-on effect on consumers is inevitable.

“In the gazette notice on electricity tariffs by EPRA in January 2022, the tariff reduction did not benefit the commercial and industrial consumer’s categories 4-5 (with a demand charge of Sh220 per kVA). However, EPRA in their submissions stated that these categories will fully benefit in the 2nd Phase expected by 31st march 2022,” BAC observed.

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