The government has denied a return of fuel subsidies but admitted tapping into the Petroleum Development Levy to cushion customers form high prices.
The levy will be used to compensate oil marketers fto enable them retain the prices of Super petrol, diesel and kerosene at the current rate.
The Energy and Petroleum Regulatory Authority on Monday retained the price of a litre of petrol at Sh194.68 in Nairobi, diesel at Sh179.67 and kerosene at Sh169.48 in its August-September fuel review cycle.
This it said was despite a higher import bill in the wake of rising global prices.
The prices would have gone up to Sh202.01 for Super petrol, Sh183.26 for diesel while kerosene would have retailed at Sh175.22 per litre.
The EPRA computed prices have been pushed up by increases in the landed costs for the three products.
According to EPRA, the average landed cost of imported super petrol increased by 6.84 per cent from $691.76 (Sh99, 475 ) per cubic metre in June to $739.09 (Sh106,281) in July.
Diesel increased by 4.29 per cent from $673.14 (Sh96,797 ) to $701.99 (Sh100, 946) while that of kerosene increased by 7.41 per cent, from $642.91 (Sh92,450 ) per cubic metres to $690.58 (Sh99,305).
This adds to the weakening shilling against the US dollar which has further pushed up the import bill.
"In order to cushion consumers from the spike in pump prices as a consequences of the increased landed costs, the government has opted to stabilise pump prices for the August-September pricing cycle," EPRA director general Daniel Kiptoo said in a statement.
During the campaigns and coming into power, President William Ruto made a firm stance on subsidies, saying his government would focus on subsidising production, among them being fertiliser, as opposed to consumption.
In May, he moved to abolish the fuel subsidy which had been in place since April 2021, where the government was drawing at least Sh7.65 billion monthly to compensate OMC margins.
The new government was also under pressure from the IMF whose part of a loan condition last year was for the country to cut subsidies and increase revenues, which came with an upward revision of the VAT on fuel from eight per cent to 16 per cent.
This is under the Finance Act 2023.
"There is political sensibility in keeping super prices below the 200 handle and also showing a bit of care to the population after the tough bite of the Finance Act," data analyst and financial expert Mihr Thakar said.
Kenya was asked to drop the fuel subsidy programme under the 38-month budget support scheme, which included a $2.34 billion (Sh336.5 billion) loan package.
IMF has in the past questioned the use of subsidies when the country's revenues remained low, against a high recurrent expenditure and borrowing, terming subsidies as wasteful mitigations.
According to IMF, Kenya spent at least Sh91.9 billion on fuel subsidies along, between fiscal years 2021-22 and 2022-23.
Yesterday, the government termed its move as “stabilisation” of fuel prices and not a subsidy.
OMCs compensation will come from the Petroleum Development Levy, which the previous Jubilee administration used to in its year-long subsidisation of prices.
“The PDL is a fund for a rainy day such as this one. We have not applied any exchequer funding which would be a subsidy, but simply given back to Kenyans their money which we have collected from them in the past,” a communication seen by the Star stated.
Consumers pay Sh5.40 per litre of petrol and diesel, and Sh0.40 per litre of kerosene as PDL, which is among nine other taxes imposed on fuel products.
The government is taking a total of Sh76.65 as taxes alone on every litre of petrol, Sh63.83 on a litre of diesel and Sh57.43 on kerosene.
VAT, which was last month increased to 16 per cent, from eight per cent, takes the lion share of Sh26.85, Sh24.78 and Sh23.38 on every litre of petreol, diesel and kerosene sold, respectively.
“It is within the funds that have been collected and does not need any exchequer support as was the norm in the previous administration which employed exchequer funds which made it a subsidy,” the ministry explaineD.
It said the PDL was being misused by “the handshake government.”
Nevertheless, the government could be forced to tap into the levy longer if it is to continue cushioning consumers, based a projected increase in global crude prices.
Global benchmark Brent crude oil prices are projected to average $86 per barrel in the second half of 2023, surging towards this year's highest prices of $90.90 recorded in January.
