How latest sharp rise in fuel pump prices exposes gaps in energy sector management

Last week’s steep increase in the cost of fuel has exposed major gaps in the management of Kenya’s petroleum sector.

The higher costs have already kicked up a storm between the management of the Road Maintenance Levy and the different sides of the political divide.

Analysts, however, point to major cracks in the running of the country’s energy sector that have led to fuel costs jumping by the biggest margin in over two years. 

In increasing pump prices by about Sh9 per litre of the three fuel products, whose prices are regulated, analysts say, the people in charge of the sector appear, on the one side, to have been caught off guard despite having instruments that could have contained the sharp increase. 

It has, at the same time, exposed the subpar investments in the sector, which is expected to deal a blow to the country’s fragile economy.

Experts pointed to alternative tools, such as the motorists-funded Petroleum Development Levy (PDL), which cushions users from sudden hikes, but which the government refused to use.

There are also concerns about the ill-timed increase in taxes and oil firms’ margins and the failure to invest in mega storage infrastructure, which have been in discussions for more than a decade and could have been tapped into to tame sudden spikes.

Notable in the July-August pricing cycle was the absence of fuel subsidy. The government has in the past tapped into the PDL kitty to stabilise fuel prices, preventing sudden spikes in pump prices.

It has done this even in instances where petroleum prices have been declining. 

It has, however, in recent months reduced the subsidies and scrapped them over the June-July pricing cycle.

Kenyans are now wondering why it was not used during the July-August cycle to at least meet them halfway and lessen the pain at the pump.

National Treasury Cabinet Secretary John Mbadi said earlier this week the kitty used to cushion consumers is not exclusive to subsidising pump prices but has other uses.

“PDL is not just about price stabilisation, it is about price stabilisation and developing the petroleum industry,” he said.

“The government chooses when to intervene. Epra (Energy and Petroleum Regulatory Authority) felt that for now, we do not have to intervene because if you intervene too early, you can deplete that fund.”

The higher pump prices over the July-August pricing cycle were partly attributed to the Iran-Israel conflict, which saw ships avoid the Strait of Hormuz and instead use longer routes.

This resulted in high freight rates, with fuel imported to Kenya posting higher landed costs. Landed costs increased by between 6.72 per cent and 9.33 per cent for the three products, whose price is regulated.

This defied global crude oil prices, which dropped to $67.73 per barrel in June 2025 from $80.22 per barrel in March this year. 

The Iran-Israel conflict is in addition to the crisis created by attacks by the Houthi Rebels on the Red Sea that, at some point, saw shipping lines suspend shipments through the route.

The impact on pump prices in Kenya, according to Martin Chomba, the chairman Petroleum Outlets Association of Kenya (Poak), speaks to a lack of planning with the Energy and Petroleum Ministry.

Mr Chomba noted that had the government taken the issue of Petroleum Strategic Reserves seriously, it would be able to absorb such shocks and protect the economy.

The government has for years been planning to set up strategic fuel stocks and at some point mandated the National Oil Corporation (Nock) to go about acquiring and maintaining the reserves that could last the country up to 90 days. The fuel would be stored by the Kenya Pipeline Company (KPC).

“The people who have been manning the industry have not been deliberate about it [strategic reserves]. I equate the supply of fuel to national security. Considering that the global shocks are increasing by the day, and as such, for any person in charge of the sector today, petroleum strategic reserves would be first on their mind,” he said. Mr Chomba added that in today’s world, countries are in a complex interdependency, meaning disruptions in one part of the world have an impact on other parts of the world. 

“Today, if something happens and there is no vessel coming to Mombasa, we may not have stocks to last us a month. We are living in increasingly tense global systems where one thing can trigger these kinds of things,” he said.

The Petroleum Act requires oil marketing companies to maintain operational stocks that can last them 21 days.

“We have a duty to invest in strategic reserves where you have products that can last you for more than a few weeks and hedge against global shocks.”

The push for strategic petroleum reserves has not moved past the planning stage, despite being exposed to major shocks.

Mr Chomba also noted that the country is currently dependent on facilities put up by private sector players, and even then, many of them are run by multinationals. 

“If you look at our petroleum industry, over 50 per cent of that industry is in the hands of international companies domiciled in other countries. If we have political tensions and, for instance, one or two of these countries stop trading with Kenya, then we will be in trouble,” he said.

“As a country, we must look inward and see how to hedge against international issues that are beyond our control.”

The Petroleum (Strategic Stocks) Regulations, 2020 require the country to have petroleum reserves that can be tapped into in case there are supply disruptions that might lead to outages.

The government has, however, never actualised the regulations. This has in the past been attributed to a lack of adequate storage facilities that can hold the quality of petroleum.

The Energy and Petroleum Ministry has in the past said it would pursue a Public-Private Partnership (PPP) model to put up facilities that would hold the strategic stocks, which has, however, not been followed through on.

The regulations required the Petroleum CS to source, through a competitive tendering process, an oil marketing company to supply petroleum products “for the establishment and maintenance of the strategic stocks.

The 2020 regulations revoked the 2008 regulations. The latter had mandated Nock to acquire and manage strategic fuel reserves, while KPC would store the fuel. Nock, which has for years struggled to stay afloat, was stripped of the mandate. The State-run oil marketer has, over time, seen its share of Kenya’s retail petroleum market dwindle to insignificant levels today, from about nine per cent a decade ago. It is despite players noting that it could be a significant player in the market.

The 2020 regulations say the strategic stocks should be “maintained for an equivalent consumption of 15 days or any other period as may be determined by the Cabinet Secretary,” significantly lower than the 90 days in the 2008 regulations.