State allocates Ksh49b fuel subsidy

Thursday, June 23rd, 2022 06:24 | By
The State had partially withdrawn fuel subsidy, sending diesel and petrol prices to an all-time high in the first increase since October. PHOTO/FILE

The government has prioritised paying fuel subsidy in the second supplementary budget to cushion Kenyans from the blows of surging global fuel prices that is depleting resources and hurting the economy.

In the second Supplementary Appropriation Bill 2022 signed by President Uhuru Kenyatta on Tuesday, the fuel subsidy received the highest allocation of Sh49.29 billion out of the total Sh88.82 billion available for government expenditure on public services.

The Budget Committee of the National Assembly had earlier this month proposed a Sh15.4 billion increase in the allocation to the fuel subsidy programme during the amendment to the Appropriation Bill 2022, citing need to tame runaway inflation.

Gradual ealimination

While the allocation gives hope of relatively low pump prices, the amount can only serve a few months before depletion as Treasury works on gradual elimination of the kitty, signalling costlier fuels in coming months.

“A gradual adjustment in domestic fuel prices will be necessary in order to progressively eliminate the need for the fuel subsidy, possibly within the next Financial Year,” Treasury CS hinted in a recent circular.

The World Bank estimates that the kitty will cost an average of $66 million (Sh7.72 billion) every month, it implies that the Sh49.29 supplementary allocation can  cushion motorists for only 6 months beginning July.

The duration could even be shorter since scenario analysis suggests that the global fuel prices could surge further. Murban crude oil cost $112.48 (Sh13,148) per barrel in May 2022, an increase of 19.67 percent from $93.99 (Sh10,986) per barrel in April 2022.

For the current pump pricing phase ending July 14, the government is expected to compensate oil majors Sh25.56 per litre of super petrol and Sh48.19 per litre of diesel consumed for not passing to consumers the whole 19.67 percent jump in fuel prices.

Kenya consumes about 220 million litres of diesel every month while petrol consumption stands at approximately 165 million litres, according to data by the Kenya National Bureaus of Statistics.

More on Commerce