Call for return of subsidies, price reduction as fuel crisis looms

Kiharu Member of Parliament Ndindi Nyoro wants the government to immediately move to deal with a looming fuel crisis by reinstating subsidies or removing the Sh7 levy instituted in 2024.

The Sh7 levy was introduced through a gazette notice by the then Transport Cabinet Secretary Kipchumba Murkomen (now in the Interior docket), which increased pump prices from Sh18 to Sh25.

In 2023, the Kenyan administration, while removing subsidies, raised Value Added Tax (VAT) on fuel by eight per cent (to make it 16 per cent) as it sought to be in good books with the International Monetary Fund.

Nyoro said these increases were happening as global oil prices were falling.

“Kenyans have to know that this happened even as global oil prices were falling,” he said at a press conference in his office yesterday.

Nyoro said when global oil prices were higher in 2022, averaging Sh13,000 ($100) per barrel, reaching a peak of Sh15,080 ($116) in May, petrol in the country was Sh150 and diesel Sh131, respectively. Without the subsidy, this price was Sh176 and Sh174, respectively.

Later, oil prices went down to Sh7,150 ($55) per barrel, but Kenyans did not feel this reduction as the VAT and levy took effect.

“In the current fuel prices, taxes and levies constitute half of what Kenyans pay at the pump. Kenyans are not going to accept any story around Iran if we still have VAT at 16 per cent and the Sh7 being collected by the government,” said the MP.

“The remedial measure the government must take immediately is the same way they added the Sh7 on fuel levy, which is to reciprocate to Kenyans. It is now on the side of the government to reciprocate by reducing VAT from the current 16 per cent to even zero.”

A spot check by The Standard across the city revealed normal operations in selected petrol stations.

There, however, have been challenges and queues in other petrol stations, such as Total Mombasa Road. At Shell Ongata Rongai, there has been a shortage, with only the V-Power brand available.

“I have heard of the shortage and the jitters around. However, I have not experienced it. I usually fill my tank when I fuel,” said Paul Kibichy, a motorist, while fuelling at Shell, Lusaka Road.

However, George Nyaga, another motorist, said it has become critical to have the car filled up in the current situation.

“So far, I have not experienced the shortage, but I know that as the war escalates, it might happen. We are now filling our tanks just to be safe,” he said.

At the same time, a section of petroleum industry players have called for the suspension of fuel price controls, a move that would allow them to hike pump prices, arguing that the maximum prices announced mid this month do not reflect the full cost of fuel.

Independent oil dealers have cited unsustainable wholesale costs and a lack of regulatory protection and claim they are now accessing fuel from multinational firms at prices at almost the same levels as the regulated retail limit. High wholesale prices, they said, had made it uneconomical for their retail operations. 

This was on account of the failure by the Energy Petroleum and Regulatory Authority (Epra) to publish maximum wholesale prices alongside the retail prices in the March-April pricing cycle. 

“We call for the immediate suspension of price regulation so that the market can reflect the actual cost of fuel,” said Irene Kimathi, chairperson of the Independent Oil Importers Association.

“Failing this, we may have no alternative but to halt our services. Over the past few weeks, we have been operating at a loss, with our working capital being depleted each day. This situation is no longer sustainable.”

She argued that in determining this month’s pump prices, Epra should have considered the difficulties that the oil sector is experiencing, including the declining number of vessels delivering fuel at Mombasa. “The fuel cargo that is expected carries a landed cost increase of more than Sh70. With such a significant rise in cost, oil marketers are not prepared to sell at the current regulated prices,” said Kimathi. 

Independent players, who largely serve the vast rural market that is largely underserved by multinational firms, account for a significant share of the market, especially in rural areas where oil majors find it uneconomical to set up.

Kimathi further noted there is a concern that fuel meant for the local market could now start finding its way to the export markets, where pump prices are not regulated.

“Additionally, there is a growing temptation to divert fuel to neighbouring countries that do not operate under controlled pricing regimes.’’