Motorists spared Sh50 fuel price increase with Sh16bn subsidy

The government yesterday extended the fuel subsidy, saving consumers a Sh50 price increase in the July pump price review.

Motorists would have bought a litre of petrol at Sh209.95 in Nairobi had the subsidy been scrapped.

Statehouse announced a Sh16.675 billion subsidy to retain current prices at Sh159.12 for a litre of Super petrol, Sh140 for diesel and Sh127.94 for kerosene.

Scrapping the subsidy as earlier planned  would have seen Kerosene mostly used by low income households for cooking and lighting would retail at Sh181.13 per litre, Sh53 more while a litre of diesel would have hit Sh193.64 .

Last month, the National Treasury termed the ongoing fuel subsidy programme unsustainable and announced plans to scrap it.

The exchequer said fuel subsidies are inefficient and often lead to misallocation of resources and crowding out of public spending on productive sectors.

''This results in unintended consequences such as disproportionately benefiting the well-off. Even though scrapping off the plan will trigger a price hike, it will not be to the levels witnessed before Russia- Ukraine crisis,'' National Treasury CS Ukur Yatani said. 

But yesterday, statehouse spokesperson Kanze Dena said the government has renewed its commitment to provide further direct relief to Kenyans by rolling out more subsidies.

The timing could be a political move to assuage voters ahead of the August 9 elections.

"We will continue to roll out similar actions so as to provide further direct relief to all Kenyan families and establish the necessary safeguards for protecting Kenyan consumers from further increases in the cost of living,"Dena said.

To date, the government has channeled Sh101.852 billion towards the subsidy kitty that has been in place since mid-2020.

It raised the petrol levy to Sh5.40 from Sh0.40 in July 2020 and committed to adding about Sh2 billion every month to the kitty to cushion consumers from price hikes.

With the removal of the subsidy plan and recently hiked taxes on petroleum products, Kenya would have the highest fuel prices in East Africa, pushing up further the cost of living. 

High food and transport prices pushed up the cost of living in June to a five-year high of 7.9, above the government's ceiling by 40 basis points.

Latest Kenya National Bureau of Statistics (KNBS) data shows the Consumer Price Index, a measure of 12 top items in the food basket rose to an index of 124.22 compared to 123.12 the previous month. 

The cost of living has been rising on a monthly basis since February, hitting 7.1 per cent in May. 

This is partly attributed to Ukraine-Russia crisis which has stoked energy and food prices after choking the global supply chain. 

The average landed cost of imported super petrol increased by 19.04 per cent from $876.05 per cubic metre in May to $1,04.85 in June, Diesel increased by 2.20 per cent from $997.35 to $1.019.29 per cubic metre.

That of Kerosene also increased by 6.83 per cent from $905.60 to $967.42 in the same period.

The Free Of Board price of Murban crude oil lifted in June was posted at $104.48 per barrel a decrease from $112.48 in May.

The local currency that averaged 116.89 in May has weakened further this month, hitting a new all-time low, at 118.53 yesterday–Central Bank of Kenya data.

In June 2022, the average price of one barrel of Brent crude oil was $122.71 per barrel, a 9.1 per cent increase from $112.48 in May, and $93.99 in April.

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