Falling pump prices fail to spur fuel consumption amid tough economic times

The reduction in fuel prices over this year has not been enough to spur consumption, new data shows.

According to the latest market data by the Kenya National Bureau of Statistics (Knbs), consumption of petroleum products dropped over the first six months of this year, continuing the trend that was witnessed last year.

The government has been subsidising the cost of petroleum products, which has partly been among the factors driving down pump prices, but this has also been adequate to lift consumption.

.

Keep Reading business

•  Honda and Nissan expected to begin merger talks
•  Irony of lowest inflation in 17 years but Kenyans barely making ends meet
•  How new KRA guidelines will impact income tax calculation
•  Job loss fears as Mbadi orders cost-cutting in State agencies
•  Diversifying Kenya's exports for economic prosperity

The decline in consumption over the first half of this year was despite the drop in fuel prices over the period.

Pump prices have come down from the record highs that were seen towards the end of last year, although they remain relatively high. 

The cost of a litre of super petrol has reduced to the current Sh188.84 in Nairobi from the record high of Sh217.36 in November last year, reducing by Sh28.52 litre over the period.

Diesel has reduced by an even bigger margin of Sh33.87 to Sh173 per litre from Sh Sh205.47 in October last year, while kerosene has gone down by a substantial Sh43.31 per litre to retail at Sh163 from Sh205.06 a litre in October last year.

The drop in local pump prices has been on account of a strengthening shilling, which is now Sh130 to the dollar, from the highs of Sh160 seen at the start of the year.

The drop in pump prices could have been higher were it not for the hike in the Road Maintenance Levy, which went up in July from Sh7 per litre of diesel and petrol to Sh25 from Sh18.

The high court has since ordered the government to stop levying the higher charge by the Energy and Petroleum Regulatory Authority (Epra).

The government has also been subsidising petroleum products, which appears to have not been adequate to bring prices to a level that Kenyans are comfortable with spending as they have done in the past years.

Over the August-September pricing cycle, the government cushioned users of super petrol by Sh3.40 per litre, diesel by Sh5.20 and kerosene by Sh3.83 per litre.

In a statement last week, Petroleum Principal Secretary Mohamed Liban said the government had since September 2022 spent Sh44 billion to cushion motorists from the high cost of petroleum products. The ministry, however, draws differences between its spending on subsidies to that of the previous Jubilee administration, noting that in Kenya Kwanza’s case, the money is drawn from the Petroleum Development Levy (PDL) Fund unlike in Jubilee’s case where the government then would splash money unsustainably on subsidies. 

“The Kenya Kwanza (KK) government on coming to office in September 2022 made an executive policy decision to remove subsidies on all products and services. Refined petroleum products were not spared and subsidies on super petrol were removed on September 14, 2022, while those on diesel and kerosene were removed in May 2023. Before the KK government, Sh144 billion had been spent on subsidies,” said the ministry in a statement.

“Under the KK government, a petroleum price stabilisation framework has been put in place and all the expenditure the government incurs in petroleum pump price stabilisation is self-funded from the Petroleum Development Levy Find. So far, the government has spent Sh44 billion on stabilisation of petroleum pump prices, all of which has been funded by the Petroleum Development Levy Fund.”

The Jubilee administration increased the Petroleum Development Levy in July 2020 to Sh5.40 per litre of diesel and petrol from 40 cents.

The government also expanded the mandate of PDL to include petroleum stabilisation. The government started stabilising prices in April 2021, but at some point spent more than was available in the PDL Fund to prevent a surge in fuel costs.

This was seen as a campaign tool as the country tended towards the August 2022 elections. Former President Uhuru Kenyatta was backing opposition leader Raila Odinga, who lost to President William Ruto.

The consumption of cooking gas and jet fuel, however, registered growth. Usage of liquefied petroleum gas (LPG) went up 16.97 per cent to 195,450 metric tonnes over the first half of this year, up from 167,080 tonnes last year. Also up was jet fuel, which grew 12.95 per cent to 358,430 tonnes from 317,340 tonnes in the first half of 2023.

The rise in consumption of jet fuel has been due to the continued recovery of the local and global aviation sector. The sector that was hard hit in 2020 was expected to fully recover in 2024.