Motorists to Enjoy Fuel Subsidies as State Seeks Review of Pricing Formula

Kenya has decided to retain the subsidies on fuel prices to help ease the high cost of living currently facing its citizens.

John Musonik, the Mining, and Petroleum Chief Administrative Secretary told the parliament that the State will continue utilizing the Petroleum Development Fund as it reviews the determinants of setting fuel prices. This will cushion motorists, businesses, and individuals from inflation.

“We have been using the fund since April. Right now, we are looking at stabilizing the prices as we look at all the other components in the pricing,” Mr. Musonik told the Senate Committee on Energy.

The Petroleum Development Fund is meant to be activated whenever global oil prices hit above 50 US dollars, approximately 5,486 shillings, per barrel.

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The State draws this fuel subsidy from the reserves raised from fuel consumers through the petroleum development levy, which was increased to 5.40 shillings per liter in July 2020. It has since raised more than 15 billion shillings.

Thanks to the subsidy, consumers have been enjoying an average of 14.49 shillings and 19.54 shillings per liter of diesel and kerosene, respectively, since April.

The price reviews of April and July also spared motorists 8.01 shillings on super petrol retaining the price per liter at 127.14 shillings in Nairobi.

Without the subsidy, a liter of petrol would be costing as high as 130.71 shillings – the highest in history and would have incredibly worsened the cost of living across the country.

Globally, fuel prices have been increasing courtesy of an improved outlook for demand. Crude prices, for instance, rose from 36.34 US dollars in June 2020 to 63.35 dollars this year, priming the stage for a sharp increase in fuel prices.

Kenya’s move to utilize the subsidy is aimed at reducing the risks of imported inflationary pressure that would reflect on consumer products and services in months and possibly trigger more outcry by households smarting from the economic shocks of the COVID-19 pandemic.

High fuel prices have a direct impact on Kenya’s diesel-driven economy with producers of electricity and manufactured goods passing the cost to consumers.

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Most of the population depends on kerosene and gas for lighting and cooking, making crude price a key determinant of the rate of inflation. Hence the need for a review of the pricing formula used to set diesel, petrol, and kerosene prices in the monthly review.