State mulls return of fuel subsidy to stabilise prices
The government is mulling the reintroduction of the fuel subsidy programme in a bid to lower prices.
The government is once again mulling intervention in the petroleum products market to cushion consumers from high fuel prices.
This comes barely three months after it withdrew the subsidy programme in line with the terms of the International Monetary Fund (IMF) financing package.
The Kenya Kwanza administration withdrew the fuel subsidy programme on May 14 this year, a move that saw the price of a litre of premium petrol increase by Sh3.40, while diesel and kerosene went up by Sh6.40 and Sh15.19 respectively. The price of fuel rose further following the standardisation of the Value Added Tax (VAT) on the products to 16 per cent from eight per cent.
Nation has learnt that Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo wrote to the chief executive officers of oil marketing companies on August 9, indicating the government's intention to intervene in the market to ease the burden of fuel costs on Kenyans. Mr Kiptoo sought to allay fears that the introduction of relatively low-priced stock into the market will cause price distortion and put oil marketers at a disadvantage.
"The authority notes that volumes in excess of those budgeted for the July-August pricing cycle may be introduced into the market before the next pricing cycle. The oil industry players are concerned that should the government intervene to cushion consumers from the high prices experienced in the international markets in the next pricing cycle, the cargoes introduced earlier will suffer from cost differentials without a clear mechanism for recovery," Mr Kiptoo said in his letter to the CEOs.
Fuel prices are highest in Mandera, where a litre of unleaded petrol costs Sh208.68, while a litre of diesel and kerosene costs Sh193.67 and Sh183.49 respectively. The lowest prices are in Mombasa where a litre of premium, diesel and kerosene fetch Sh191.62, Sh176.63 and Sh166.43 respectively.
Epra has assured oil marketing companies that, where such stock is brought into the market, any cost differential will be recoverable, meaning the government is prepared to reimburse them for the price differential between the cheaper stock brought in and what they will be selling.
"The authority confirms that cost differences will be treated as prudent and recoverable in cases where cargoes are introduced into the market before the price review and as a result of government intervention to cushion consumers. The volumes introduced will be verified by the authority based on data provided by the Kenya Revenue Authority," Mr Kiptoo's letter said.
It is not clear what quantities the State intends to bring in, how it will be sourced and when it is expected to hit the market. Mr Kiptoo declined to comment on the matter when contacted. However, the CEO of a major oil marketer told Nation that the government had already introduced cheaper cargoes into the market in the week ended August 12.
"This week, an extremely high freight was introduced in the market and most of the OMCs had stopped selling to the resellers citing the huge price differential. This was likely to cause a major disruption in the distribution and supply network. The cost of the current cargoes is beyond what Epra provided as wholesale caps last month and I can only think that this letter seeks to allay these fears," the CEO said.
