Top government officials were holed up in hours-long crisis talks at State House going into the night to discuss on the fate of fuel prices.
The Energy and Petroleum Regulatory Authority (Epra), which was yet to announce the new prices by the time of going to press, was expected to announce record high prices of fuel.
On Tuesday, President William Ruto had vowed to withdraw the fuel subsidy that has kept prices stable since July. At his inauguration, the President said he will do away with subsidies on fuel and food, arguing that they’re a huge burden to the exchequer and often lead to product shortages.
“In addition to being very costly, consumption subsidy interventions are prone to abuse, distort markets and create uncertainties including artificial shortages of the very products seek to subsidise,” he said.
The International Monetary Fund (IMF), which is in a 38-month loan deal with Kenya, has given the country until next month to end the fuel subsidy to ease pressure on the exchequer.
But, just a day after his momentous inauguration, President Ruto found himself in a tight spot in which he had to make a tough decision. He had to choose whether to continue with the costly subsidy that would negatively affect his government’s ability to spend or to betray the seven million Kenyans who voted for him having promised to immediately lower the cost of living.
This is a double blow as Kenyans have also been hit with a steep rise in the cost of electricity after the state withdrew the subsidy that has kept its cost stable.
Epra had not adjusted these pass through costs — the Fuel Cost Charge (FCC), Foreign Exchange Rate Fluctuation Adjustment (Ferfa) and Water Resources Management Authority (Warma) levy — since December 2021.
The FCC is the single largest variable electricity cost adjusted monthly and is collected by Kenya Power to be reimbursed to thermal power generators for their fuel purchases used to generate power.
With the brakes off fuel subsidy, the withdrawal of the subsidy on electricity has pushed its cost to the highest level in months heavily hitting households, businesses as well as industrial consumers.
The high fuel prices could, however, avert a fuel shortage crisis that has been brewing for weeks.
The Kenya Pipeline Company (KPC) had last week sounded the alarm over an imminent fuel shortage due to failure by oil marketing companies to pick up fuel cargo from importers due to lack of money to pay for the cargo.
The withdrawal of the subsidy will now avert the fuel shortage, with oil marketers handed a new lifeline with the new higher prices as they will collect their money upfront.
Farmers will also not be left behind in facing the full force of the new fuel prices. Diesel is heavily used in agricultural activities, including powering tractors for tilling land and running machines for shelling maize.
The farmers could, therefore, feel neglected in that regard by President Ruto, who promised to subsidise farm inputs to lower the cost of food production.
“The cost of living challenges are related to production. Our strategy to bring down the cost of living is empowering producers. The main cause of decline in production [of maize] is the high cost of inputs,” President Ruto said.
He also seems to be turning his back on a pledge to cut taxes on fuel to lower its high cost.
Taxes and levies charged on fuel include value added tax (VAT), excise duty, railway development fund (RDF) and petroleum development levy (PDL).
“The first thing we need to do is look at the taxes because almost 50 per cent of the cost of fuel in Kenya is taxes. We need to interrogate which taxes we can put aside so that we can limit the taxation on fuel,” he said during the presidential debate in July.
Instead, the Head of State has promised to step up efforts to collect more taxes to fund his administration.
“We have to stop borrowing but Kenyans must also pay taxes and save. We have had a conversation with KRA and we asked them not to punish taxpayers but collect taxes without threats and intimidation because this is the only way we are going to grow our economy,” the President said during a thanksgiving service in Meru on Sunday.
The Kenya Association of Manufacturers (KAM) says the record prices will increase their cost of production, which will result in increased prices of goods.
“The high cost of fuel is expected to increase the cost of production for manufacturers, resulting in more pain for consumers who are already struggling to make ends meet. This is because the price of fuel cascades across the value chain—production, distribution, and retail,” Mr Tobias Alando, KAM acting Chief Executive said. The manufacturers have urged President Ruto to honour his promise to cut taxes on fuel to alleviate further increase on the product’s cost.
“We urge the government to suspend some of the taxes on fuel as an alternative mechanism to shield the country from the high cost of fuel.”
Last month, the subsidy shielded the prices of petrol from jumping to Sh214.04 per litre up from Sh159.12.
Meanwhile, the cost of diesel would have also jumped to Sh206.17 up from Sh140.03, while that of kerosene would have also gone up to Sh202.11 up from Sh127.94, according to Epra.
“We removed the subsidy as pronounced by President Ruto and forwarded the new rates to State House for approval.
“By our figures, fuel prices would definitely go up though the final decision lies with State House. It is beyond us,” a source at Epra told the Nation yesterday.