Night meetings, intrigues that led to the lifting of fuel subsidy

The President agreed to the meeting, which was being held at a time when parts of the country were reporting shortages of super petrol, linked to oil marketers being unable to import fresh petroleum products due to delayed subsidy refunds.

Supply disruption

Ruto, whose swearing was only a few days away, was alive to how explosive petroleum matters could be and was keen to avoid a repeat of the supply disruptions that rocked the country in April and in his initial days in office.

What was discussed remains unclear even to senior officials at the Petroleum Ministry and the National Treasury, according to our source.

On Tuesday, President Ruto said his government would not continue subsidising fuel and maize, perhaps an indicator that the oil marketers had made a strong case on why it was necessary to do away with the subsidies and scored a major win.

"It appears that the case by the marketers as well as Treasury's concerns in the past about the sustainability of the fuel stabilisation programme convinced the President to do away with the subsidy," said the source at the ministry.

"There were however considerations on sectors such as transport and manufacturing, which are critical to the economy and rely heavily on diesel as well as the plight of low-income households who use kerosene. This saw the government withdraw the subsidy on the two products in a phased manner."

The president instead said his administration would focus on subsidies geared towards production of food, as a modality to cut cost of living.

In the fuel prices that were announced late Wednesday, oil marketing companies were major winners, as the government scrapped the subsidy on super petrol. It also reduced the subsidy on diesel by 68.5 per cent and 64.6 per cent for kerosene. This will mean that oil marketers no longer have to wait for government refunds in the case of super petrol.

With prices at record highs, focus might again shift on taxation of petroleum products in a bid to offer to consumers of not just fuel but most products, which heavily depend on fuel for production and movement to market. Taxes account for a huge chunk of the cost of pump prices. At Sh64.14 per litre of super petrol , taxes and levies currently account for 35.78 per cent of the retail price of the Sh179.3 a litre of super petrol in Nairobi.

Tax review

National Assembly's Finance and National Planning Committee had last year suggested a review of petroleum taxes. The committee, then chaired by Gladys Wanga, had proposed cutting of taxes.

The Wanga committee also proposed halving VAT on fuel to four per cent from eight per cent, the reduction of oil marketers margins to Sh9 from the current Sh12 and have inflation adjustment done every two years, as opposed to the current annual adjustment. The committee also wanted inflation adjustment to be oversighted by Parliament as opposed to the current scenario where the Kenya Revenue Authority publishes the rates depending on the average annual inflation rate.

Nothing however came of these proposals.

Fuel prices have been going up over the last two years after a huge drop was experienced in April 2020 after the collapse of crude oil prices owing to reduced global demand. As economies recovered however and in turn growth in demand for crude oil prices, local pump prices have maintained an upward momentum.