The pain of the government’s move to raise fuel prices above the record Sh200 per litre on Friday (September 15) started being felt with a planned matatu fare increase , long distance truckers fearing for their jobs and employers warning that they might have to sack staff due to expected rise in production costs.
Runaway fuel prices are also expected to have a ripple effect on households with expected surge in prices of essential commodities due to rising production and transportation costs.
This as Trade Cabinet Secretary Moses Kuria warned Kenyans to brace for even higher prices, which he said could rise by as high as Sh10 for the next four consecutive months, until February 2024.
This means that in Nairobi, motorists are now buying petrol at a record Sh211.64, diesel at Sh200.99 and kerosene at Sh202.61.
The record high fuel prices are set to unlock a whole new level of pain for Kenyans as transport operators immediately announced a sharp increase in fare prices in what is set to affect millions of commuters.
This is also set to translate into a higher cost of other commodities as fuel is also used to generate thermal electricity especially during periods of peak demand, transportation of goods, aviation and in agriculture making it a major component for farming.
The high taxation is only adding fuel to fire as employers have already announced likely layoffs to cut costs coming at a time the country is already reeling under a high burden of unemployment.
But high ranking government officials have warned that the worst is yet to come, signalling that the government has run out of options of how to stabilise prices of basic commodities especially as President William Ruto has vowed to do away with all consumption subsidies.
“Global crude prices are on an upward trajectory. For planning purposes, expect pump prices to go up by Sh10 every month until February,” said CS Kuria amid the uproar that followed the prices increase.
The Federation of Kenya Employers (FKE) said the disruptions mean that employers are no longer able to plan their costs and inputs.
The National Treasury through the Finance Act, 2023 introduced a myriad of tax changes including doubling value added tax (VAT) on fuel to 16 percent and introducing a 1.5 percent housing levy deducted from the gross pay of workers and matched by their employers.
“Tax increases brought about by the Finance Act, 2023 coupled with the already high electricity tariffs and tight monetary policy have slowed consumption which is the main driver of domestic demand in Kenya,” said FKE national president Habil Olaka.
FKE said Kenya had lost over $345 million (Sh50.69 billion) in foreign direct investment (FDI) and other investment inflows in three months as economic growth plummeted over high taxation and an unpredictable business environment.
“Employers are appealing to the government to provide a stable and less costly business operating environment. The government needs to commit to a long-term development plans and give enough lead time for businesses to adjust their budgets before making far reaching policy changes,” said Mr Olaka.
While matatu owners set the planned fare hike at 20 per cent, the Federation of Drivers and Conductors said the increase would be at 30 per cent.
This means Kenyans could pay even more than the price set by the vehicle owners as the support staff seek to get a larger margin, which they often use to share in the profits.
“We all know that when the fuel cost goes up, we will have to pass it to the common mwananchi. We will have to increase the cost of our products so that we do not lose business,” said the association chairman Albert Karakacha.
“We have been consulting them (PSV operators) about the increase of fuel and we have come up with a way that immediately they need to increase the fare,” said Mr Karakacha.
Transporters are also bracing for losses due to the high fuel cost which will make investors using northern corridor shy away or seek alternative means of transportation.
Kenya Transporters Association (KTA), Kenya Long Distance Truck Drivers Union (KLDTDU) and truck owners have warned the government might lose revenue as cost of fuel will have direct impact to business at the port of Mombasa
KTA Chief Operating Officer Mercy Ireri said new fuel prices will affect logistics business and other countries might move their preference to central corridor.
“As transporters, we have contracts with different manufacturers and it will directly affect cost which will be reviewed upwards. At the moment, the cost will hit hard transporters since clients are not willing to review their contracts as a result of new fuel prices,” said Ms Ireri.
Mr Abdi Awale, founder of Awale Enterprise Limited (AEL) urged government consider subsidy to lower fuel cost to make cost of living affordable to Kenyans.
“In the coming days, we expect truck owners to start auctioning their trucks since the business is no longer viable. Life is becoming difficult not only to ordinary Kenyans but also to manufacturers and transporters,” said Mr Awale.
Employers have also warned the spate of new taxes have made the cost of doing business unbearable and that the lack of a predictable legal and policy tax framework has greatly disrupted their business operations.
Despite Dr Ruto storming to the presidency on a platform of lowering the high cost of living, government officials continue to paint a picture of helplessness when it comes to taming high fuel costs.
In a presentation on Friday ahead of the release of pump prices for instance, Epra Director-General Daniel Kiptoo said the high pump prices were outside of the government’s control.
Mr Kiptoo attributed the high prices to production cuts by the Organization of Petroleum Exporting Countries (OPEC) of at least 3.6 percent of the global daily demand.
He said that sanctions on Russian ships following the outbreak of the Russia-Ukraine war has disrupted supply of the crucial commodity, a situation that has been worsened by increased demand for diesel and kerosene especially in Europe for heating ahead of winter.
On a more positive note however, the Epra boss also disclosed that Kenya has successfully renegotiated premiums with the three Gulf oil companies which are supplying the country fuel as part of the government-to-government oil import deal.
Mr Kiptoo said the government has managed to bring premium on petrol from $97.5 per metric tonne to $90, diesel premium to $88 from $118 and kerosene to $111.75 from $114.25.
“The government of Kenya has successfully renegotiated the government-to-government premiums,” he said.
High fuel prices have ensured that the rising cost of living continues to be a menace for Kenyans despite a recent ease in inflation primarily driven by a slight drop in food prices.
