Moral questions on fuel subsidy halt

Fuel pump

A Fuel attendant holding a fuel pump at the filling station along Kimathi Street. Expert reports and experience show the bulk of energy subsidies end up benefiting the rich and others who can afford the market prices.


Photo credit:  Jeff Angote | Nation Media Group

What you need to know:

  • The subsidies, due to poor targeting, benefit all sectors of the population although their proponents—often politicians and their commercial interest backers—cite the poor for justification.
  • The subsidies often create a disincentive for innovation, competitiveness in investments and maintenance in the energy sector.
  • Reports show the bulk of the fuel subsidy allocations were gobbled up by just five main ‘big boys’.


Governments set up subsidy programmes for a variety of reasons, top among them to cushion the citizens, especially low-income segments of the population, from economic hardships.

The recently halted fuel subsidy programme was no different.

Only that universal energy subsidy programmes—in fuel and electricity—end up being problematic in execution as they end up benefiting the rich more than the poor they were conceived to comfort in the first place.

They have been found difficult to package and channel solely to the targeted deserving segments of the population, whose needs are the main justification for the allocation of huge amounts of tax treasure to subsidy interventions.

Expert reports and experience show the bulk of energy subsidies end up benefiting the rich and others who can afford the market prices.

A 2013 International Monetary Fund (IMF) report observed that energy sector subsidy programmes held back economic progress in Sub-Saharan Africa as they had become a black hole, draining colossal amounts of public resources, and an obstacle in hindering investments, innovation, maintenance and competitiveness.

The subsidies have been found to create two sets of problems. First, due to poor targeting, they benefit all sectors of the population although their proponents—often politicians and their commercial interest backers—cite the poor for justification.

As in the case of the recent fuel subsidy, the matatu operator and his passengers enjoyed the same benefits as industrialists and manufacturers hauling their produce to the Indian Ocean in Mombasa, DRC or horticulture exporters to the airports.

And since the rich end up consuming more fuel and electricity per individual household or business operation than many low-income earners put together, the bulk of the subsidy budget allocations end up benefiting the target groups less than it does the unintended groups.

Questions abound about equitable utilisation of public resources, where the rich consume more electricity as they have more appliances and luxury services at home while the poor enjoy the subsidy benefits in lower matatu fares but are not comparable to the fuel guzzlers the rich fill with cheap fuel funded by the taxpayer.

Unless the government resorted to individual transport vouchers for the poor—as they do with relief food—the fuel subsidy becomes immoral and untenable.

Secondly, the subsidies often create a disincentive for innovation, competitiveness in investments and maintenance in the energy sector.

Being a state-funded splurge, the temptation for inducing lazy and Mafia mob-like behaviour among players becomes irresistible.

Five main ‘big boys’

Reports show the bulk of the fuel subsidy allocations were gobbled up by just five main ‘big boys’, who manipulated the programme to isolate the majority of small players in the petroleum product distribution value chain.

Sales data, on which claims are made, is provided by beneficiaries, not an independent authority, making it more of an opaque gamble than compassionate relief intervention.

Rather than continue with a problematic subsidy that is compromised in execution, it is prudent to pause it for review and reflection than continue pumping tax money into a black hole.

The resources saved and experience gained can be utilised to design better and more sustainable and meaningful interventions to cushion and uplift Kenyans in the low-income brackets, who are the main concern of government social welfare policies and programmes.

It is important that the public appreciate the double loss in the subsidy programme.

One, the bulk of the allocated funds benefit the rich more than the intended poor and, two, the subsidy essentially is free cash pumped into fuel merchants’ pockets, which is tax money that should instead go into providing other essential services.

The double gain regime reinstated recently means the poor will endure the pain of paying more for fuel until international price fluctuations stabilise but the tax dollar haemorrhage has been plugged and fuel merchants begin paying full tax to public coffers than claim compensation.

However, the review and reform process needs to be accompanied by a rollout of a public education programme to create awareness for ‘Wanjiku’ about what is at stake and why unplugging became inevitable and necessary.

The public awareness programme is essential as the government has socialised the citizen to enjoy the subsidy for a long time and, therefore, the sudden withdrawal comes with painful disruptions.

Besides, people need to be educated on why that is in their interest.

Public awareness should also be accompanied by alternative packages the government has in the pipeline as compensation for the withdrawn fuel subsidy.

This is in addition to existing social safety nets and social welfare programmes, such as the monthly stipend for the vulnerable persons; heavily subsidised primary, secondary and TVET education programmes; universal health coverage riding on the back of a reformed and revamped National Health Insurance Fund (NHIF).

Mr Kwinga is a political scientist. [email protected]

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