Subsidy spares Kenyans from paying Sh155.11 for a litre of petrol

A litre of super petrol will now cost Sh134.72 per litre in Nairobi in the new prices announced yesterday by Epra. [Elvis Ogina, Standard]

The government increased the retail cost of super petrol and diesel, a move expected to hit consumers.

It is the first time the Energy and Petroleum Regulatory Authority (Epra) changed prices in the last five months since October last year.

Epra used the state fuel subsidy to retain prices at the same levels. A litre of super petrol will now cost Sh134.72 per litre in Nairobi in the new prices announced yesterday. Diesel will retail at Sh115.60 in the capital.

Despite the Sh5 hike per litre of diesel and super petrol, the retail price would have been higher had the government not applied the fuel subsidy.

According to Epra, the actual pump price for super petrol is Sh155.11, which means the State has spent Sh20.39 cushioning consumers against a sharp increase.

Diesel, a key fuel for industries, has been subsidised to the tune of Sh27.56 per litre, with the regulator noting it would have otherwise retailed at Sh143.16. The State spent Sh26.90 in stabilising the cost of kerosene, which would have retailed at Sh130.44 without the subsidy.

The pump price for kerosene will remain unchanged for the March-April pricing cycle at Sh103.54. The authority said the increase was due to the higher landed cost of refined petroleum products over the last month, noting that the prices of the three petroleum products grew by double digits. This includes kerosene, whose price was retained at the same level as last month.

Landed cost is the cost of the product when it gets to Mombasa before taxes and levies, as well as margins for oil marketers, are included.

“The average landed cost of imported super petrol increased by 13.34 per cent … diesel increased by 11.74 per cent… while kerosene increased 15.94 per cent,” Epra said.

Fuel prices last reached the current prices in the September-October pricing cycle when the government failed to apply the subsidy, but in the October-November cycle resumed using the subsidy. Local retail prices have remained unchanged over the five months.

Despite local prices remaining unchanged, crude oil prices have been going up over the months, initially due to demand as economies shook off Covid-19. Things worsened starting February amid the Russia-Ukraine war. Russia is the world’s second-largest exporter of oil.

The situation is expected to get worse as the impact of the Russia-Ukraine conflict hits homes for the next one or two months. The crisis in Eastern Europe has resulted in an increase in the cost of crude oil as well as the costs associated with transporting oil.

Fuel pump at a gas station in Nairobi. February 18, 2021. [Elvis Ogina, Standard]

While oil prices have eased over the last few days, it had momentarily touched a decade high of $139 (Sh15,707) per barrel last week before receding to $110 (Sh12,430) early this week.

With the high fuel prices in the country, the cost of basic goods would go up since many industries heavily rely on petroleum for their production and transportation.

The government says there is not enough money to continue subsidising pump prices.

Mr Mohamud Salat, the group chief executive of Hass Petroleum, said the Russia-Ukraine conflict will without a doubt see a further increase in the landed cost, which will hit consumers hard if the government does not continue with its stabilisation programme.

“The conflict in Ukraine has resulted in not just an increase in oil prices but also the cost of hiring a vessel.

“Vessels also have to use longer routes to avoid conflict zones, which adds to the cost of fuel they use, which is already expensive as well as the cost of insuring them,” he said.

Considering that crude oil has in the recent weeks reached a high of $130 per barrel, Mr Salat estimates that in the next one or two months the local pump price for super petrol could hit Sh176 a litre in absence of the subsidy.

The National Treasury set aside Sh25 billion for the stabilisation programme in the current financial year in the Supplementary Budget, raising hope that in the short term, it will continue cushioning Kenyans at the pump.

The Petroleum ministry has in the past said the money it collects through the Petroleum Development Levy, which is channelled to the stabilisation programme, is not enough to sustain the subsidy.