ABOUT TURN

MPs want fuel levy scrapped for failing to stabilise prices

According to the report, the Petroleum Act 2019 does not explicitly provide for price stabilisation.

In Summary
  • Under the subsidy scheme that excluded petrol, Kenyans are not expected to bear the costs of diesel prices above $50 a barrel.
  • This week, crude oil hit $80 per barrel, the highest in three years. 
Attendants at a petrol station./FILE
Attendants at a petrol station./FILE

The committee on delegated legislation has advised the National Treasury to annul in entirety Petroleum Development Levy which was meant to tame the rising cost of fuel in the country. 

This is after it emerged that the amount is lying idle in an account hence not stabilizing diesel prices to cushion consumers as intended. 

In a detailed report dated September 29 and approved for tabling in the house, the committee wants MPs to scrap the levy which took effect last year. 

The Petroleum and Mining Ministry reviewed the levy, increasing it to Sh5.40 per litre from 40 cents while expanding its mandate by including a price stabilizing component for diesel.

This added diesel to the first schedule of the Petroleum Development Levy at a rate of Kes 5,400 per 1,000 litres at 20 degrees centigrade.

The state has been more than Sh12 billion from households and businesses to stabilise diesel prices.

Under the subsidy scheme that excluded petrol, Kenyans are not expected to bear the costs of diesel prices above $50 a barrel.

According to the report, the Petroleum Act 2019 does not explicitly provide for price stabilisation.

It argues that a regulatory framework would need to be reviewed to permit the creation of such a fund with clear guidelines on the modalities for its operation.

''This will ensure monies from this fund are not diverted for 'other vital government projects' or 'government emergencies,'' the committee said. 

According to the report, the omission of diesel in the Legal Notice 124 of 2020 means that the government has been taking Sh5.40 for every litre of diesel consumed in the country without the backing of the law.

The same committee had last year approved the Petroleum Development Levy Order, 2020 (Legal Notice No. 124 of 2020), paving the way for Parliament to pass it into law and allow motorists to get cuts on the price of diesel.

This saw informed a July 2020 legal notice by Petroleum Cabinet Secretary John Munyes which increased the levy for different fuels.

The William Kamket led  Committee said that despite collecting in excess of Sh30 billion through the levy, the government has failed to draw from the kitty to stabilise 

The increase in the levy is one of the reasons for the recent record rise in fuel pump prices, with a litre of super petrol currently retailing at Sh134.72 in Nairobi, a six per cent increase from Sh127.14 per litre previously.

Diesel, on the other hand, is retailing at Sh115.6 a litre, up from Sh107.66, while kerosene, largely a poor man’s fuel for lighting and cooking, is going for Sh12.97 per litre, up from Sh110.82.

Even so, Petroleum Principal Secretary Andrew Kamau has asked members of parliament not to scrap the petroleum development levy since it offers flexibility in stabilizing fuel prices.

He explained the fund was still operational and that the reason why it was not spent in some months including September was that the ministry had not received the necessary approvals. 

Diesel is a critical fuel for the economy, especially transport, manufacturing and power production. A sudden increase in the cost of diesel tends to have an impact on the pricing of basic goods.

The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country.

Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum, unleashing pricing pressure across the economy with ramifications on the cost of living measure.

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

On Thursday, the Kenya National Bureau of Statistics (KNBS) reported that Inflation rose from 6.57 per cent in August to 6.91per cent last month.

This as global crude oil prices soar to pre-virus levels in recent weeks, driven by the production cuts by the Opec nations and crisis in Europe. 

This week, crude oil hit $80 per barrel, the highest in three years.