Home Economy State pumps Sh16.7bn to marketers to keep fuel prices unchanged

State pumps Sh16.7bn to marketers to keep fuel prices unchanged

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President Uhuru Kenyatta on Thursday took charge of the fuel price review three weeks to the August polls as he sought to ensure that the rising fuel prices do not snowball into a political crisis.

This is after State House in an unprecedented move took charge of the process and that saw the government take a big hit to keep the prices unchanged in the month to August 14 to diffuse public outrage as Kenyans go to the ballot.

The announcement came nearly three hours before the Energy and Petroleum Regulatory Authority (Epra) issued the notice in line with the law that compels the regulator to gazette fuel prices every 14th day of the month.

Epra had since March increased pump prices drawing public outrage from Kenyans who have been forced to grapple with the highest inflation in nearly five years.

A litre of super was retained at Sh159.12 and diesel at Sh140 in the cycle ending August 14 cushioning Kenyans against further increments in the cost of goods and services. A litre of kerosene was retained at Sh127.94.

“His Excellency the president has today authorized an additional fuel subsidy of Sh16.675 billion so as to cushion Kenyans from a further increase in fuel prices,” read a dispatch from State House.

Without the subsidy, a litre of super would have jumped to Sh209.95 while that of diesel would retail at Sh193.64 and kerosene at Sh181.13.

An increase in pump prices would have boosted the William Ruto-led Kenya Kwanza political alliance that is riding on the promise of lowering the cost of living in a bid to win the presidential poll on August 9.

Kenya is currently grappling with a 58-month high inflation a situation that has turned out to be a key political tool between Kenya Kwanza and the Raila Odinga-led Azimio coalition that has the backing of President Kenyatta.

The unchanged pump prices came despite the landed cost of imported super jumping 19.04 percent to $1,042.85 (Sh123, 390 ) from last month while that of diesel rose 2.2 percent to $1,019 (Sh120,568) in similar period.

The government will pay the highest amount in compensation to oil marketers since April last year when the State rolled the fuel stabilization scheme.

Oil marketers will pocket an estimated Sh20. 8 billion in compensation with diesel accounting for the highest at Sh11.8 billion while that for super will be Sh8.38 billion and kerosene (Sh599.2 million).

The government owed oil marketers an estimated Sh20 billion in compensation and the unchanged prices for this monthly review will further strain the fuel stabilisation kitty.

Release of the Sh16.7 billion brings to Sh101.85 billion the amount that the government has spent to compensate oil dealer since April last year.

The subsidy is supported by the Petroleum Development Levy, which was increased to Sh5.40 a litre of petrol and diesel from Sh0.40 in 2020.

Inflation hit a 58-month high driving the cost of goods and service through the roof and an increase in fuel prices would have further led to a rise in cost of living.

The growing public outrage would have dealt the government a blow and hurt the chances of candidates supported by the State including Raila Odinga.

Policy makers and politicians have taken notice of the online campaigns by ordinary Kenyans concerned by the spike in cost of basic goods and how the State coffers are handled ahead of the elections.

Kenya’s inflation hit a 58-month high last month on soaring food prices, breaching the government’s upper limit ceiling for the first time in nearly five years and further squeezing stagnant earnings of households.

This is the first time the year-on-year cost of living measure crossed the upper limit target of 7.5 percent since August 2017 when it climbed to 8.04 percent.

The jump in cost of living has been caused by the skyrocketing fuel prices and the Russian-Ukraine war that has severely disrupted the supply of commodities such as wheat and cooking oil.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum.

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.