Why Kenyans are paying more for fuel despite Ruto’s pledges

Monday, September 18th, 2023 08:09 | By
A petrol station price sign board showing the latest fuel prices. PHOTO/Kenna Claude
A petrol station price sign board showing the latest fuel prices. PHOTO/Kenna Claude

Kenyans are exposed to further increases in fuel prices every month for the rest of the year due to the weakening of the shilling and a reduction of export volumes by oil-producing countries.

Oil exporters have cut back supplies by about three million barrels a day, pushing up prices globally.
In Kenya, this has been compounded by the depressed revenues from the Petroleum Development Levy (PDL), from which money to stabilise prices was withdrawn last month.

The levy only collected Sh2.3 billion in July and Sh2.5 billion in August, while the government requires about Sh7.5 billion monthly to pay off the arrears it owes oil companies.

That means the government will be incurring a shortfall of about Sh5 billion every month, thus requiring the Treasury to find other sources of funds to pay oil marketers their unremitted compensation.

This will be further complicated by the fact that the stabilisation fund withdrawals lack budgetary allocation in the 2023/24 financial year. Kenya is also under sustained pressure from the International Monetary Fund (IMF) to scrap subsidies.

“In July, we had a spike of diesel and we were able to cushion (consumers). August, we also cushioned you. This time (September), because of escalating global prices, we have to go about many problems, which is why we are having all these spikes,” Petroleum Principle Secretary Mohamed Liban said last Friday.

Sh10 every month

“We need to face the reality. First of all, we need to ensure the security of supply.

Kenyans were on Friday hit by the highest increase in monthly price adjustments after the Energy and Petroleum and Regulatory Authority (EPRA) raised super petrol prices by Sh16.96, diesel by Sh21.32 and kerosene by Sh33.13. The three products now retail at Sh211.64, Sh200.99 and Sh202.61, respectively in Nairobi.

Appearing before the National Assembly’s Energy Committee, Energy Cabinet Secretary Davis Chirchir admitted that the government had no control over the increase in fuel prices, signaling gloomy days in coming months amid inflationary pressures.

“Going forward, we are likely even to be going to harder times because these are Platt prices from OPEC (Organisation of the Petroleum Exporting Countries), and there’s nothing much we can do about them,” he said.
“There have been some 3.6 million barrels cut on a daily basis. I wish it was still possible to subsidise, but we had some covenants with IMF. But suddenly the pain is heavy, it is not going to be easy.”

Chirchir’s sentiments were echoed by his Trade and Industry counterpart Moses Kuria, who said the prices of fuel will “go up by Sh10 every month until February”.

President William Ruto’s administration bowed to IMF pressure to scrap subsidies after taking office to ease the burden on the national Treasury on debt repayments.

The President, who rode to power on a populist campaign, said subsidies are unsustainable and prone to abuse, and he would rather subsidise production instead of consumption.

Now caught in a tight spot over costly energy prices, the administration is juggling between cushioning Kenyans at the lower end of the economic pyramid against the background of liquidity challenges.

One of the President’s advisers on the economy, David Ndii, is on record as saying that Kenya was basically “in receivership” due to debt pressure.

Kenya’s attempts to negotiate cheaper fuel on credit terms through the government-to-government (G2G) arrangement have equally also not borne the anticipated dividends, further dampening hustlers’ hopes of a reprieve at the pump and the subsequent reduction in the cost of living.
Open tender

Chirchir indicated the government managed to renegotiate freight and premiums of petrol and diesel to $90 (Sh13,140) per cubic metre from $97.5 (Sh14,235) in the G2G deal with Saudi Arabia, the world’s biggest crude exporter. Saudi and Russia agreed early this month to extend by three months the removal of 1.3 million barrels of crude per day from the global market.

Though the G2G deal has helped ease dollar demand in Kenya, the gain of renegotiation has not been transferred to consumers while the shilling is still weak against the dollar, hitting Sh146 against the greenback last Friday.

Under the deal with Saudi Aramco, the Arab country was to supply Kenya with diesel and petrol for six months starting from April, while Abu Dhabi National Oil Company (Adnoc) was to deliver three consignments of super petrol every month.

In addition, Emirates National Oil Company Group (Enoc), the third player, was assigned to export 250,000 to 350,000 metric tonnes of petrol and motor for 270 days.

The government now wants to step back from the G2G plan upon its expiry and return to the previous open tender system (OTS) after the IMF, which has been increasingly shaping Kenya’s policies, also warned the deal posed debt exposure risks.

Worsened by a weak shilling and high demand in the global market due to cuts in production volumes, the jump in pump prices risks washing away the lower inflation rate witnessed in recent months in large part due to the start of the harvesting seasons.

The decline in this inflation figures, currently at 6.7 per cent by the end of August and within the government target of 2.5 to 7.5 per cent, does not however reflect any reduction in the prices of other consumer products like flour, rice, sugar and cooking oil, all of which could now be worsened by the record jump in pump prices.

Kenya’s economy is diesel-powered, impacting agriculture, transport and manufacturing, the three main sectors that dictate the cost of consumer goods.

For instance, Public Service Vehicles (PSVs) in Nairobi have increased fares by at least Sh20, indicating the immediate ripple effect of the fuel price adjustment last week.
The average landed cost of imported diesel rose by 12.52 per cent from $701.99 (Sh101,788) per cubic metre in July to $789.89 (Sh114,534) in August 2023.

Similarly, petrol cost rose by 4.8 per cent from $739.21 (Sh107,185) per cubic to $774.67 (Sh112327) during the same period, while Kerosene increased by the biggest margin of 19.79 per cent.

The price increase has been worsened by increased taxes, comprising petroleum development levy, import declaration fee, excise duty and Value-Added-Tax (VAT), which has doubled to 16 per cent since July.

There is a proposal to further to increase VAT to 18 per cent from next year to align it with what other countries in the East Africa Community charge.

For now, high taxes have seen Kenyans pay the steepest fuel price increases compared to other countries in the region.

In Tanzania, diesel prices currently stand at Tzs3,259 (Sh189.5) per litre, while petrol is going for Tzs 3,213 (Sh187).

In Uganda, which gets its fuel through Kenya, a litre of diesel was retailing at about Ush4,999 (Sh195).

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