In a last-minute decision, the Kenyan Cabinet prevented a significant increase in fuel prices, even though the cost remains at historically high levels in the latest evaluations.
At a Cabinet meeting on Friday, a decision was reached to reinstate the critical stabilisation fund, with the aim of mitigating a looming and substantial surge in fuel prices, as documented in the most recent pricing review by the Energy and Petroleum Regulatory Authority (EPRA).
This latest price revision delivered disquieting news for Kenyan consumers as the price of petrol skyrocketed by Ksh5.72 per liter, diesel experienced a surge of Ksh4.48, and kerosene saw a notable increase of Ksh2.5.
These escalating figures translated into astounding new price points in the capital, Nairobi, with super petrol commanding a hefty Ksh211.7 per liter, diesel demanding Ksh205, and kerosene scaling up to Ksh205.
Had it not been for the Cabinet’s swift intervention, the dire implications were crystal clear – petrol, diesel, and kerosene would have each borne the brunt of Ksh8, Ksh16, and Ksh12 increases, respectively.
The decision-making calculus within the Cabinet hinged upon the use of the petroleum development levy as a mechanism to extend a helping hand to the Kenyan populace.
Energy Cabinet Secretary Davies Chirchir said the executive decided to use the petroleum development levy to give Kenyans some cushion.
“The Cabinet agreed to use the petroleum development levy to support Kenyans. There has been an increase of about nine percent from September in fuel prices globally,” said the CS.
This localised fuel conundrum is, however, intrinsically linked to the broader global landscape. The supply of oil on the world stage has been increasingly constrained, primarily stemming from production cuts by major producers and exacerbated by geopolitical turbulences such as the Russia-Ukraine conflict and the Israel-Pakistan standoff.
Moreover, the doubling of the Value Added Tax (VAT) on fuel to a notable 16 percent, initiated on July 1, has coalesced with the pressing issue of a lofty landing cost, in conjunction with a weakened Kenyan shilling, to further exacerbate the price dynamics of the commodity.
Kenya’s currency has been on a free fall to exchange at 148 to the dollar currently when compared with 123.8 a year ago, piling more pressure on imports.
As quantified by an assessment of the average landed costs of imported super petrol, which escalated by 3.93 percent in August to $805.14 per cubic meter in September 2023, diesel and kerosene fared no better, experiencing percentage increases of 7.07 percent and 5.01 percent, respectively to attain $845.72 and $868.70 per cubic meter.
In the fiscal domain, the government sought to augment its revenue streams by authoring a significant amendment, as stipulated in the Finance Act of 2023, which effectively doubled the VAT on petroleum products from an erstwhile eight percent to the present 16 percent.
The reverberations of the heightened fuel costs will likely resonate across multiple sectors, exerting upward pressures on manufacturing, electricity production, and various service providers.
As the economics of these enterprises adapt to this new reality, a corresponding increase in inflation, previously experiencing a cooling-off period in the last couple of months, becomes an ominous inevitability.
Kenya’s inflation rate, a critical economic indicator, breached the 6.7 percent mark in August, surging to 6.9 percent in September, a shift attributed to the escalating costs of both fuel and essential food commodities, according to the Kenya National Bureau of Statistics.