Fuel strike may have been settled but seeds of budget protest germinating

Protestors block the Nairobi-Namanga Road at Kitengela town during the fuel hike demonstrations. [Peterson Githaiga, Standard] 

Distracted by last week’s transport drama, many forgot we are at the “business end” of our current budget season. Monday, May 25, is the submission deadline for public views on the 2026/27 Estimates and 2026 Finance Bill.  Apart from being part of our ongoing fuel drama, did this transport episode suggest harder questions around our fiscus-economy? Food for thought.

Meanwhile, we still can’t decide which part of the fuel drama is tragedy, and which one is farce. Remember those “sub-standard” oil imports around Easter, which flowed into our system? Then this administration retrospectively lowering standards to accommodate these sub-standards? Didn’t we see senior officers arrested then resign in police stations as investigations began? What happened to the millions found in personal homes? Weren’t we told, “we have dealt with the cartels”? What about the national security meeting which pre-approved emergency imports?

Stop asking questions, we are told. Don’t you know there’s conflict in the Middle East?  Weren’t you silent about the Russia-Ukraine war during the previous regime?

Before anybody could shout “engine knock”, the conflict was then sold to us as prime suspect behind the jump in April-May fuel prices. This script was retained in the current May-June cycle.

Knowing that a good drama needs dancing, this administration has twisted and twirled Kenyans through a crafty “double shuffle”.  First, jack up prices, then drop them by a fraction as a “listening government”. In Markets 101, we hear that prices are “upwardly mobile, but downwardly sticky”.

A good drama is also unpredictable. So, April-May changes preceded public protests; May-June followed the strike.  After bumbling and fumbling, the government got the strike postponed for a week, then cancelled it forever.  If this was ancient Greece, we would call it a “Deux es Machina” (“God from the Machine”) moment, where the impossible is resolved improbably, even implausibly. Kenyans might disagree on the state as magical, but will ask, “What magic happened”?

Even as we imaginatively connect the dots, let’s reflect on this fuel drama in three broad ways. President Ruto’s Friday address is a good place to start.  After calling out rivals for making hay from this crisis, he essentially presented a three-part statement.

On the energy front, he promised to invest in renewables, electric mobility, public transport and energy infrastructure, while noting that the Interior Ministry is acquiring 3,000 EVs, and promising that the first/next 100,000 EV imports would be duty-free. This was predictable as long-term policy, not short-term product - buy a new EV to address today’s fuel prices, some asked?

Transport operators heard promises to engage financial institutions on temporary financing/debt relief; engage the Insurance Regulatory Authority on insurance claims; review the Insurance and Auctioneers’ Acts and get NTSA to set minimum fare regulations for digital taxi platforms while allowing the renewed use of graffiti and artwork, presumably for PSVs. This was also predictable; sufficient business concessions to redirect industry attention from public action to private profits. 

Then the part on fuel. First, he reaffirmed the G-to-G arrangement despite new public questions – from stability of fuel supply and/or prices to competition/cost-efficiency concerns in the current “closed oligopoly”.  Second, he reasserted Kenya’s oil refining intent as an energy security goal.

He also presented a few data points that are worthy of interesting interrogation. By example, at Sh28.19 billion, does the value of government support interventions overstate VAT foregone by effectively counting almost all of the original 16 per cent rather than the 8 per cent reduction?    

Equally, it is clear that the calculation of fuel prices we would have paid without support cleverly, yet technically correctly, brighten government’s “listening” narrative.  Put it this way.  In practice, fuel prices are calculated from scratch (that is, latest landed cost) every month as a short-term transaction cost so technically subsidies will last one pricing cycle.

But government’s “economic” price systematically applies accrual principles (debt, deferred liabilities) and opportunity costs (loss/financing multipliers, taxes foregone, subsidies).  So, on a cash basis, super would have been what it is, Sh214.25, which government calculates at Sh230.12; diesel – cash Sh257.43 versus government’s Sh277.75 and kerosene Sh244.07, government Sh270.

Technical finesse aside, you see the difficulty in securing public trust based on financial gymnastics. Think about this when quick observation, beyond clever bookkeeping, suggests the Petroleum Development Levy Fund (PDLF) is running on empty, as oil marketing companies drown in debt. 

Our second fuel saga reflection applies multiple lenses: revenue, spending, economy, debt, resources. This multi-lens worldview helps to quickly road test policy and institutional logic.

On revenue, there are questions around the plethora of taxes and levies feeding into pump prices, with suggestions that, say, VAT, excise duty or the roads development levy be deferred or scrapped. Yet the harsh reality is all petroleum-related revenues contribute anything up to 15 per cent of ordinary revenue, and it is the easiest cash flow.  How would we fill this budget hole? Beyond ease, there is predictability; how quickly will cash released translate into new tax inflows?

On spending, what should we slash to match tax cuts? Corruption and wasteful expenditure is a popular idea. New institutions created by the 2010 constitution, including counties, are seen as valid targets, but did these institutions cause the high fuel taxes and levies? Cut capital projects? Not when we’re doing the reverse; ring-fencing revenue for development.

In reality, this administration seems either unable (capacity) or unwilling (incentives) to envision and execute a rationalised expenditure model that protects pro-poor spending, supports growth spending at value for money and doesn’t collapse economic activity through scattergun austerity.  If anybody needs a Department of Government Efficiency and Effectiveness (DOGEE), it’s us!

The economic lens, as the people’s lens, is the victim of two “doom loops”.  First, a cost of government (hence, taxes and debt) which drives the cost of doing business (consumer prices), thereby raising the cost of living (prices versus wages) to which the government responds with socio-economic programs and jobs, which grows its cost (more taxes and debt) and recycles the loop. 

Second, the true doom loop is built on a weak private sector foundation, which makes government the national safety net operating in a fiscal squeeze due to a sub-optimal tax take from the same private sector.  This forces us into a crowding-out debt trap to cover deficits that emerge in an underperforming economy.  Paradoxically, the long-term answer to our fuel drama is a booming economy, but a booming economy is itself dependent on less fuel drama (affordable energy).

Fuel in our debt matrix is a new development; think securitisation.  We pay for this debt in pump prices, while mortgaging future revenue, which will hamstring future fiscal flexibility. Red flag?

The resource lens, to repeat, graduates Kenya from a “revenue mobilisation” to a “resource development for wealth creation” model.  Fuel, energy, and security are core to this model.  Would you accept high taxes and levies in a PDLF knowing they targeted our long-term energy security?

Overall, you see initial, if strategically incoherent, elements of each lens in the President’s agenda.

Which brings us to a crucial third view of the fuel saga: transparency and accountability.  Where are we on the supposed fuel import scandal?  Ditto emerging questions on fuel pricing, not just with taxes and levies, but landed costs and other elements of the cost make-up, including margins?  Can we lift the veil on our closeted import oligopoly?  And get to the real truth on the PDLF?

These different perspectives suggest that resolving the transport strike was a temporary band-aid.  As the wider fuel saga continues to feed cost-of-living anger among Kenyans at this stage of the budget process, you can see the seeds of mid-year protest germinating, slowly but surely!