Reinstal fuel subsidy in the medium term

Fuel pump

A Fuel attendant holding a fuel pump at the filling station along Kimathi Street. In the latest monthly review by the Energy and Petroleum Regulatory Authority (Epra), Super petrol is up by Sh20.18 to retail at Sh179.30 per litre.


Photo credit:  Jeff Angote | Nation Media Group

What you need to know:

  • The new government must look for novel sustainable ways of cushioning consumers from a further increase in fuel prices.
  • In the medium term, the government may be forced to revert to the subsidy.
  • A review of taxes levied on fuel will be necessary to ease the burden on consumers.

The Fuel Stabilisation Fund, which became operational early last year, has had both a negative and positive impact on Kenyans.

While the previous Jubilee government used the fund to cushion consumers against increasingly high fuel prices, critics argued that it was unsustainable. 

The new William Ruto administration has scrapped the fund and fuel prices have since jumped to an all-time high.

In the past, petroleum consumers in the country were paying to the fund Sh5.40 per litre of petrol sold.

The fund was to be in force as long as international crude oil prices remained above $55.

Poor management of the fund and late payment to the four main oil marketing companies have in the past resulted in oil shortages.

But despite its inefficient long-term nature, the fund has stabilised fuel prices when international prices were rising due to the Russia-Ukraine war.

The new government must look for novel sustainable ways of cushioning consumers from a further increase in fuel prices and maintaining inflation at levels that will not result in higher food prices.

In the medium term, the government may be forced to revert to the subsidy because some of the reforms in the oil sector will not have an immediate impact on the cost of fuel. 

More importantly, a review of taxes levied on fuel will be necessary to ease the burden on consumers.

At the Mombasa port, the government must find ways of reducing the time it takes to clear oil tankers so as to reduce the demurrage levied on them and passed on to consumers. 

National Oil Corporation should also be strengthened and its storage capacity increased. 

Lastly, the oil marketing industry, which is currently oligopolistic with four main players, should be opened up to other players to increase competition with the attendant benefits to consumers.

It will be unsustainable to continue fighting inflation via subsidies in the long term but within the next four to six months, President Ruto will have little choice but to maintain the fund.

Gilly Onyango, Nairobi

* * *

Contrary to the high expectations of Kenyans, President Ruto’s government has laid the grounds for hefty taxes and the people should prepare for hard economic times during his tenure.

President Ruto removed the subsidy to fuel dealers that gave consumers fair prices. That will only hurt the ordinary Kenyan.

Damson Opiyo Onger, Kisumu

Welcome!

You're all set to enjoy unlimited Prime content.