July Epra Review: Petrol Price Could Hit Record High Without Subsidy

Estimates from the Energy ministry indicate that petrol prices could hit the highest level in Kenyan history starting midnight unless the State subsidises the rising crude oil costs. These is likely to add to the already high cost of living in the country.

From midnight in the absence of the subsidises, the price of petrol will increase by at least Sh3 a litre, diesel price will jump  at least Sh2.50 a litre with kerosene set to rise a minimum of Sh3.50. These rises will see petrol cost Sh130, diesel Ksh 110.16 34 and kerosene Ksh 101.35 in Nairobi.

Currently, a litre of diesel is retailing at Sh107.66 in Nairobi from Sh74.57 June last year while petrol is up Sh38.04 to Sh127.14 over the period. Kerosene is retailing at Ksh 97. 85.

Over the past three months, the state has offered subsidies to offset the diesel and kerosene price consumers of diesel , with petrol enjoying the benefit from April review. The government offered a petrol subsidy of Sh4.40 a litre in April and has in the past three months spent Sh13.22 on kerosene and Sh7.28 on diesel.

This has seen the State keep diesel and kerosene prices unchanged since April on fears an upward review could fuel public anger.

The expected leap in fuel prices is linked to costly crude on the back of signs of demand growth as the global economy recovers from the Covid-19 economic fallout. Currently, barrel prices stand at $67.71, up from $63.94 last month , and is estimated  at $73.10 for the review that kicks off midnight.

The subsidy has come from a cut on the oil marketers’ margin, which has been regulated by the State since 2010, with the dealers receiving compensation estimated at nearly Sh2 billion.

Further, it is supported by billions of shillings that raised from fuel consumers through the Petroleum Development Levy, which was increased to Sh5.40 a litre in July last year from Sh0.40, representing a 1,250 percent rise.

This fund is meant to cushion consumers from volatility in fuel prices, however, it also sees motorists lose out when paying the Sh5.40 for a litre at the pump.

The State is tapping into the fund despite the absence of regulations to manage the subsidy scheme, having collected about Sh15 billion from motorists since July last year.

Kenya was hit hard at the onset by the pandemic, but its economy has been picking up after posting a slight contraction of 0.1 percent in 2020 according to IMF.

Meanwhile, inflation rose to a 16-month high in June largely on the back of increased cost of basic foodstuffs and fuel.  June’s inflation stood at 6.32 percent from 5.87 percent in May.

With demand for oil  still lower than normal, there are hopes of a speedier than expected economic recovery as vaccines roll out continues.