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Subsidy removal denies users deeper price cuts on fuel
The State appears keen to avoid tapping the subsidy kitty especially when landed costs of petrol and diesel fall to avoid depleting it and exposing consumers when prices of fuel rise globally.
Removal of the subsidy has denied consumers higher price cuts on diesel as the State goes easy on a kitty whose depletion in recent past has left consumers exposed to costly fuel.
The State discontinued the subsidy in the fuel prices that will be in force until October 14, a move that saw the cost of a litre of diesel drop by a paltry Sh0.80 to Sh171.47 in Nairobi while cost of a litre of petrol marginally fell to Sh184.52 from Sh185.31 even as the State failed to apply the subsidy on the commodity for the second consecutive month.
The State appears keen to avoid tapping the subsidy kitty especially when landed costs of petrol and diesel fall in a bid to avoid depleting it and exposing consumers when prices of fuel rise globally.
Diesel prices had remained unchanged at Sh185.31 in the previous cycle after the State applied a subsidy of Sh2.04 to cushion consumers after prices of the commodity rose in the global markets.
Averting steep increments
Subsidising fuel has been key in averting steep increments in the local pump prices whenever there is a spike in the global costs of the commodity. Its depletion has in the recent past been costly to consumers.
For example, the kitty lacked Sh2.5 billion that was required to subsidise pump prices in the monthly cycle to August 14 this year, leaving consumers to shoulder a rise of Sh8.67 and Sh8.99 per litre of diesel and petrol respectively.
Energy CS Opiyo Wandayi had told Parliament that the kitty was depleted ahead of the monthly price review to August 14 this year.
The State has in the recent past tapped the subsidy even when prices of fuel drop in the global markets, offering consumers deeper price reductions. This however came to hit consumers after the kitty was depleted.
Fuel subsidy kitty
For example, the State tapped a subsidy of Sh6.09 and Sh4.66 respectively per litre of diesel and petrol, which coupled with drops in costs of fuel lowered local prices by Sh2.20 and Sh1.95 respectively in the monthly cycle to May 14 this year.
The fuel subsidy kitty is funded by Petroleum Development Levy (PDL) collections. The levy is charged at the rate of Sh5.40 per litre of petrol and diesel and Sh0.40 per litre of kerosene that they buy.
PDL on petrol and diesel was hiked 1,250 percent from Sh0.40 five years ago as the State sought to boost collections and ensure enough funds to cushion consumers in cases where global prices surge. But the kitty has severally been diverted to illegal use, contributing to its depletion and in turn exposing consumers.
