Cross-subsidy on super petrol eases price pain

Fuel pump

A fuel attendant holding a fuel pump at the filling station along Kimathi Street. 

Photo credit:  Jeff Angote | Nation Media Group

What you need to know:

  • Super petrol prices fell by Sh3 a litre to Sh189.84 effective Friday midnight.
  • The move, however, denied consumers of diesel a further drop of Sh1.77 per litre.

The energy regulator has retained cross-subsidy on super petrol, cutting prices of the commodity by a higher margin but denying diesel consumers deeper price reductions.

Super petrol prices fell by Sh3 a litre to Sh189.84 effective Friday midnight, driven by a combination of cross-subsidy of Sh2.99 per litre and global drops in the price of the commodity.

The move, however, denied consumers of diesel a further drop of Sh1.77 per litre, meaning that had the cross-subsidy not been applied, a litre of the commodity would be going for Sh171.33 instead of Sh173.1.

Cross-subsidy has been the subject of a court case and concerns from Parliament on grounds that it is not legally set out in the Energy Act, 2019.

The deal allows the Exchequer to share the cost burden with consumers on one of the three grades of fuel.

This concept, however, denies users of one type of fuel higher price cuts whenever global prices fall while cushioning others whenever prices of their grade of fuel go up internationally.

Pump price for super petrol

Globally prices of diesel fell by 7.7 per cent to $680.20 per barrel according to S&P Global Platts pricing while those of super petrol dropped by 8.35 per cent to $849.52 per barrel.

“In the period under review, the maximum allowed pump price for super petrol, diesel, and kerosene decrease by Sh3 per litre, Sh6.08 per litre, and Sh5.71 per litre respectively,” Mr Daniel Kiptoo, the Director General of the Energy and Petroleum Regulatory Authority said in the pricing notice on Friday morning.

S&P Global Platts is a global provider of benchmark prices of key commodities including energy.

Without cross-subsidy, super petrol prices would have dropped by a lower margin than Sh3 per litre, in the new prices that will be in force until July 14.

The government turned to cross-subsidy after it scrapped pump price stabilisation last year. The National Treasury and consumers of one grade of fuel share the burden.

The government initially cross-subsidised diesel using super petrol given that diesel is the main driver of the economy.

Overcharging consumers

Last year, a case challenging Epra’s move to apply cross-subsidy was filed at the High Court in Mombasa with the petitioner arguing that Epra abused pricing regulations by overcharging super petrol consumers to cushion diesel users.

But the court dismissed the petition saying that it was not convinced by the petitioner’s argument that the cross-subsidy was not anchored in law.

The law provides for stabilisation of pump prices, with the State drawing money from the Petroleum Development Fund.

The Kenya Kwanza last year discontinued the pump prices stabilisation scheme last year, amid mounting pressure from the International Monetary Fund— one of Kenya’s key financiers currently.

But soaring prices that at one time breached the Sh200- a litre mark and public outrage over escalating fuel prices and cost of living forced the government to reinstate the scheme.