Trouble looms for consumers as fuel subsidy kitty runs empty

Kenyans are staring at tough times after the government revealed the fuel subsidy kitty is running on empty and is left with only a fraction of what is needed to cushion them from a historic increase in fuel prices next month.

Ministry of Petroleum Principal Secretary Andrew Kamau told Members of Parliament Tuesday that the Petroleum Development Levy Fund (PDLF) that the state draws from to compensate oil marketing companies has only Sh1.2 billion left as at February 11.

Mr Kamau further told MPs that the Sh24.73 billion the Ministry has been allocated to keep fuel prices stable in the supplementary budget is not a fresh allocation as it was allocated in June and has already been spent.

The PS was appearing before the National Assembly’s Committee on Energy over the supplementary budget estimates for the fiscal year 2021/22 submitted to Parliament by National Treasury Cabinet Secretary Ukur Yatani last month.

But the Ministry requires between Sh5 billion and Sh8 billion monthly for the fuel subsidy depending on the volume of fuel consumed by Kenyans each month, which is multiple times what is left in the kitty.

Record high prices

This means unless the Ministry is allocated extra billions in the mini budget, the government will be forced to abandon the subsidy which will see consumers pay a record high for fuel at the pump.

He said collections into the subsidy kitty are not enough, which could make its use to stabilize fuel prices unsustainable notwithstanding the sharp increases in global crude oil prices.

“What is left in the January-February cycle is Sh1.2 billion,” the PS told MPs.

The PS told the committee that since it’s since inception in 2018, a total of Sh55.7 billion has been collected.

According to the breakdown given by the PS, in the financial year 2018/2019, Sh5 billion was collected into the fund, dropping to Sh4.22 billion in the financial year 2019/2020.

However, collections into the PDLF multiplied to Sh26.5 billion in the financial year 2020/2021after the levy was raised by Sh5 per litre to Sh5.40 on petrol and diesel up from Sh0.40 per litre.

Mr Kamau said the Kenya Revenue Authority (KRA) has so far collected Sh19.17 billion into the fund in the 2021/2022 financial year.

However, the PS told the committee as at February 11 this year, only Sh1.2 billion remains in the account even as the government on Monday announced it will use the subsidy for the fifth month.

“The low collection of PDL is still a challenge in controlling fuel prices,” said the PS when asked whether the amounts collected is sustainable for the stability of fuel prices in the long term.

To illustrate what could befall consumers should the subsidy be discontinued, the Energy and Petroleum Regulatory Authority (Epra) on Monday said petrol prices would have increased by Sh14.53 per litre had the subsidy not been applied, a record high, which would have seen it retail at Sh144.25 per litre at the pump.

Epra kept fuel prices stable for the fifth month in a row on Monday by applying the subsidy.

Meanwhile, diesel and kerosene, the energy regulator said, would have also hit historic highs of Sh133.89 and Sh119.42 for the same quantity after increasing by Sh23.29 and Sh15.88 respectively. 

“The government will utilise the Petroleum Development Levy to cushion consumers from the otherwise high prices,” said Epra Director General Daniel Kiptoo.

Fuel prices will next be reviewed on March 14.

Last week, former National Assembly Majority Leader Aden Duale called for the fast tracking of the Petroleum Products (Taxes and Levies) Amendment Bill, 2021 by Parliament in order to lower fuel prices.

The MP was speaking in response to concerns raised by a consumer lobby over high fuel prices.

Huge outcry

“There was a huge outcry in the prices of fuel in this country last year. There is a Bill by the finance committee on petroleum products before this House. Kenyans are suffering. This matter should be prioritised and the Bill should be brought for second reading so that it can be cleared,” Mr Duale said.

In the Bill, MPs are proposing a reduction in the PDL by half as well as a reduction of the Value Added Tax (VAT) charged on the commodity to be cut from 8 per cent to 4 per cent.

“The objective of this Bill is to review taxes and levies on petroleum with a view of making the products cheaper. The global prices have been on the rise in the recent months hence to bring the price of fuel down, there is a need to reduce the taxes and levies applicable to petroleum products,” reads the Bill.

Kiminini MP Chris Wamalwa said fuel prices have been going up and Kenyans don’t understand the reason behind the increment.

“Parliament should do something so that fuel can be affordable because it’s a product that cuts across the class. There are always some companies that win these fuel tenders. We want to know these and their owners,” Mr Wamalwa said.

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