New task group to advise on fuel subsidy phase-out
An attendant at a filling station in Nairobi fuels a car. Kenyans are staring at tough times after the government revealed the fuel subsidy kitty is running on empty.
The government is set to constitute a task force that will guide the National Treasury on how to gradually eliminate the fuel subsidy within the next few months and ease pressure on public coffers amid rising global fuel prices.
The government has already begun gradually withdrawing the subsidy by allocating just Sh5 billion for fuel subsidy in the current financial year. This is Sh26.7 billion less than the Sh31.7 billion it spent on cushioning Kenyans from high fuel prices in the last fiscal year.
“We would like to request that the IMF Executive Board approve a review of the application of the domestic fuel pricing mechanism and publicly announce and constitute a task force to oversee the progressive elimination of the fuel subsidy within the first half of the financial year 2022/23 and to ensure that fuel pricing actions are at all times aligned to the approved Budget,” the Treasury disclosed in a submission to the IMF.
Withdrawal of the subsidy will hit consumers hard at a time when they are paying record-high fuel prices. Diesel, the most consumed fuel product, is currently retailing at Sh140 per litre; petrol at Sh159.12, and kerosene at Sh127.94. This was after President Uhuru Kenyatta last week made a last-ditch intervention to inject the fuel subsidy kitty with an additional Sh16.7 billion to keep fuel prices stable in the July-August pricing cycle.
State House said that without the President’s intervention, the pump prices would have jumped to a historic Sh193.64 for diesel, Sh209.95 for petrol, and Sh181.13 for kerosene. This is an indicator of the prices consumers could be forced to brave should the kitty be withdrawn at a time when the cost of other basic commodities such as food is also high.
Treasury Cabinet Secretary Ukur Yatani had warned that the continuation of the subsidy programme could derail Kenya’s plans to cut debt accumulation, prompting the push to remove it gradually within the current financial year. “The cost of fuel subsidy could eventually surpass its allocation in the Budget, thus potentially escalating public debt to unsustainable levels and disrupting the government’s plans to reduce the rate of debt accumulation,” he said last month.
State House said the Treasury has spent Sh101.8 billion to subsidise fuel prices since it started the fuel price stabilisation programme. Besides subsidy on pump prices, the state is in a deal with Kenya Power to allow the utility to retain lower cut consumer electricity bills without hurting its cash flows.
Energy and Petroleum Regulatory Authority (Epra) director-general Daniel Kiptoo confirmed that the state is offsetting key levies charged on consumers, including the fuel cost charges (FCC), a levy influenced by the share of electricity from diesel generators. Epra is mandated to publish new electricity prices each month to cater for price and foreign exchange rate fluctuations. It has not adjusted the pass-through costs – the FCC, the Foreign Exchange Rate Fluctuation Adjustment and the Water Resources Management Authority Levy – since December.
