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Been in a dilemma about today’s fuel price revision

Economy

Been in a dilemma about today’s fuel price revision


President Uhuru Kenyatta. FILE PHOTO | NMG

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Summary

  • Senior state officials are faced with the dilemma of how to deliver on a promise to cut fuel prices today despite the sharp rise in crude prices and the depletion of cash for the monthly fuel subsidy.
  • Fuel prices will rise from midnight to the highest level in Kenya’s history, unless the Treasury provides emergency cash to subsidize rising crude oil costs, which may further fuel public outrage over high spending. maintenance.
  • Officials have sought intervention from the House of Representatives to pass a plan that will lower or keep pump prices unchanged in an effort to deliver on the promise of affordable gasoline and allay public anger.

Senior state officials are faced with the dilemma of how to deliver on a promise to cut fuel prices today despite the sharp rise in crude prices and the depletion of cash for the monthly fuel subsidy.

Fuel prices will rise from midnight to the highest level in Kenya’s history, unless the Treasury provides emergency cash to subsidize rising crude oil costs, which may further fuel public outrage over high spending. maintenance.

Officials have sought intervention from the House of Representatives to pass a plan that will lower or keep pump prices unchanged in an effort to deliver on the promise of affordable gasoline and allay public anger.

The Treasury revealed that it had depleted the Sh31 billion set aside to subsidize fuel after it diverted Sh18.1 billion to support standard gauge rail (SGR) operations under Chinese operators.

“The subsidy was not withdrawn. We have made our recommendations on this next cycle and the powers that be will decide, ”said a senior official from the Ministry of Energy who requested anonymity.

Growing public anger, which has drawn the attention of leading politicians and the National Intelligence Service (NIS), sparked a series of meetings involving senior officials from the Treasury, the Ministry of Energy, and the Energy and Petroleum Regulatory Authority. (Epra) to discuss the review.

The Business Daily yesterday could not establish whether a decision had been made to reinstate the subsidy.

Interior Cabinet Secretary Fred Matiang’i and ODM party leader Raila Odinga spoke in early October about plans to cut fuel prices.

This promise appears derailed by rising crude oil prices to the highest levels in years, fueled by the rebound in global demand that has contributed to energy and gas shortages in key economies like China.

Oil prices hit $ 83.65 a barrel, indicating more pain at the pump given that today’s expensive gasoline is based at $ 72.34.

The shilling is currently trading at a 10-month low of 110.67 units per dollar, which increases the cost of imported goods, such as fuel.

The energy regulator – Epra – eliminated subsidies of Sh7.10 on gasoline, Sh9.90 on diesel and Sh11.36 on kerosene that were applied to the prices of fuels sold in the month until October 14.

This increased the price of gasoline by Sh7.58 a liter in Nairobi to Sh134.72 while diesel rose Sh7.94 to Sh115.6 a liter, the highest in Kenyan history.

Since March, the state has offered a subsidy to diesel and kerosene consumers, and those who use gasoline enjoy the benefit, with the exception of the May revision.

The subsidy saved consumers 24.44 shillings per liter of diesel, 15.11 shillings per liter of gasoline and 30.90 shillings per liter of kerosene in the months that it has been in effect.

The subsidy scheme was supported by billions of shillings collected from fuel consumers through the Petroleum Development Tax, which was increased to Sh5.40 a liter in July last year from Sh0.40, representing a 1250 percent increase.

The fund is meant to protect consumers from volatility in fuel prices, but it has also seen motorists lose out by paying the Sh5.40 for a liter at the pump.

The Finance Committee of the National Assembly wants the Treasury to use the Sh18.1 billion that was diverted to the Chinese company that operates SGR to reinstate the fuel subsidy.

Energy and transportation costs have a significant weight in the basket of goods and services that is used to measure inflation in the country.

Producers of services like electricity and manufactured goods are also expected to factor in the higher cost of oil.

In Kenya, most households depend on kerosene and LPG for lighting and cooking, so the price of crude oil is a key determinant of the rate of inflation.

The economy also uses diesel for transportation, power generation, and the operation of agricultural machinery such as tractors, with a direct impact on the cost of agricultural products.

Kenya’s inflation hit a 19-month high in September at 6.91 percent due to rising cost of basic goods like fuel, food and electricity.

While demand for oil remains lower than normal, there is hope for a faster-than-expected economic recovery as the vaccines are released.

Crude prices plummeted after the fallout between Saudi Arabia and Russia from production cuts in the wake of Covid-19, which also reduced energy demand due to slow economic activities.

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