ENERGY SHOCK

Higher fuel prices cannot be avoided

In Summary

• Removing the Petroleum Devlopment Levy only reduces the price of a litre of fuel by Sh5.40

• Oil-producing countries that subsidised the domestic price of fuel got into big economic problems

An attendant fills up a car at a Nairobi petrol station.
PAIN AT THE PUMP: An attendant fills up a car at a Nairobi petrol station.
Image: ENOS TECHE

The price of crude oil is above $80 a barrel and may even go higher (see P12).

Three years ago the oil price almost touched $20 a barrel. Steep prices in the cost of fuel in Kenya are unavoidable in next month's review. 

Inevitably this will have a huge knock-on effect on the economy. And so politicians want to find ways to minimise the impact – by subsidising the price of fuel or removing taxes on fuel. This would be a big mistake.

Petroleum Development Levy is charged at Sh5.40 for every litre of petrol. Removing it last month reduced the price from Sh136 to Sh129 -  roughly five percent.

But even removing VAT and other taxes would only bring the price down to around Sh100 per litre. The pain will still be there. Kenya needs the tax revenue from fuel to repay its debt and fund expenditure.

Government should avoid the temptation to subsidise the fuel price. This has only led to economic disaster in countries like Iran and Nigeria.

Instead Kenya should find ways to minimise fuel consumption – more green energy, higher taxes on fuel guzzlers, etc – which will simultaneously help to defeat global warming.

Quote of the day: "When you can't make them see the light, make them feel the heat."

Ronald Reagan
He was
elected President of The United States on November 4, 1980