Treasury diverted fuel subsidy funds, PS tells MPs

The government used money meant to cushion consumers against high fuel prices to improve petroleum infrastructure, Treasury Principal Secretary Julius Muia told lawmakers Thursday.

Mr Muia appeared before the National Assembly Finance and Planning Committee alongside Kenya Revenue Authority Commissioner-General Githii Mburu to respond to a petition by Matungulu MP Stephen Mule seeking to reduce taxes and levies on petroleum products.

Two citizens also petitioned Parliament to amend the Finance Act, 2018 and remove the eight per cent Value Added Tax (VAT) on fuel.

Mr Muia said the National Treasury drew Sh18.1 billion from the Petroleum Development Levy Fund and gave it to the State Department of Infrastructure to pay for the upgrade of petroleum architecture.

Stabilise fuel prices

Money from the Fund is meant to stabilise fuel prices.

The transfer was made even as consumers surrendered Sh18 per litre of petrol and diesel to the Road Maintenance Levy Fund (RMLF).

The withdrawal depleted the fund, making the Ministry of Petroleum to pass on the brunt of higher international crude oil prices to consumers without subsidies.

Mr Muia said Treasury wired Sh1.6 billion from the Fund to the Ministry of Petroleum in the 2020/21 financial year to keep fuel prices stable.

The Ministry of Energy was given Sh2.2 billion.

He added that the Fund got Sh25.08 billion in the last financial year after the levy was increased to Sh5.40 per litre from Sh0.40.

Steep increase

That was a steep increase from the Sh2.1 billion and Sh2 billion the Fund received in 2018/19 and 2019/20 financial years respectively.

“It is like when you have set aside money for your child’s school fees but you use it on chapatti,” committee chairperson and Homa Bay Woman Representative, Gladys Wanga, told the two officials.

Mr Muia said the Ministry of Petroleum writes to Treasury requesting money from the fund for the subsidy.

“But this is on the basis of the amount of money the Fund has,” he said.

“In the 2021/22 financial year, a further Sh5 billion was made in August following a request from the ministry because the Fund had enough money. The ministry made another request of Sh5 billion in September. Unfortunately, it could not be honoured as there was no money.”

Mr Muia said the Fund now has ShSh3.6 billion left, not enough to subsidise fuel this month.

Appearing at the parliamentary team earlier, Petroleum PS Andrew Kamau said Treasury approved the ministry’s request for subsidy money but only after the Energy and Petroleum Regulatory Authority (Epra) had reviewed the prices to be in place until November.

“Treasury wrote back and approved us to apply for the stabilisation fund. However, that was after the prices had been reviewed. We already were two weeks into the current cycle,” Mr Kamau said.

“Even if we are to apply the subsidy, what formula will we use to compensate marketing firms?”

Upgrade infrastructure

The PS added that the Petroleum Development Levy Fund Act, 1991 and the 2020 Petroleum Development Levy Fund Order give the National Treasury the powers to draw funds from the kitty to upgrade infrastructure.

The explanation appeared not satisfactory to Roysambu MP Ndirangu Waihenya.

“The two laws cited by the PS do not give him powers to misallocate funds from the levy,” he said.

Treasury also disagreed with the Ministry of Petroleum and Epra on the amount used in the fuel subsidy.

The committee is drafting a bill to guide the setting of fuel prices. It will be tabled in Parliament on Tuesday.

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