Energy Ministry owns up to inefficient fuel subsidy programme

The government is collecting about Ksh 24 billion monthly in taxes and spending Ksh 21 billion on fuel subsidies making it unsustainable, Energy ministry has said.

Petroleum Principal Secretary Andrew Kamau says this has drastically reduced tax revenue from petroleum products to a level where the government is barely collecting any tax from fuel.

The National Treasury last week announced plans to gradually adjust fuel prices in a move aimed at eliminating the need for fuel subsidy beginning FY2023/2024

In the latest monthly pump price review, the cost of a liter of super petrol, diesel and kerosene all went up by Ksh 9 as the government tapped the subsidy to ease prices.

Without the fuel subsidy, a liter of super petrol would in Nairobi be retailing at Ksh 184.68, diesel Ksh 188.19 while kerosene at Ksh 170.37.

The Petroleum PS reiterated the government’s position that fuel stabilization fund is unsustainable in the long term. Through the kitty, the government has managed to keep the pump prices low over the last one year but at the expense of other government programs that need funding.

“You are pretty much getting your fuel tax free in Kenya. Why didn’t we just decide to remove the taxes? You need to leave yourself options to do other things. If you removed the taxes, by the time the prices had reach Ksh 90 where would we go? What would we do? We cannot go back to the kitty and remove more taxes because there would be nothing. This is the reason why and how the oil subsidy came about,” said Kamau.

Kenyans are currently paying Ksh 5.40 per litre of super petrol and diesel, and Ksh 0.40 per litre of kerosene to the Petroleum Development Levy Stabilization Fund.

On Tuesday, President Uhuru Kenyatta signed the second Supplementary Budget that has earmarked Ksh 49.2 billion for the fuel subsidy kitty.

This is in addition to the Ksh 34 billion allocated to the fund in the first Supplementary Budget.

The latest data from Petroleum Institute of East Africa shows that by the end of last year,  Vivo Energy which markets Shell fuel products dominated the market with a share of 17.1pc of the local petroleum sales followed by its rivals Total Energies and Rubis with 13.97pc and 8.53pc respectively.

PIEA says five leading oil marketers have a combined market share of 61.34pc as at the end of 2021, an increase when compared to 59.94pc in 2020 in what is attributed to decline growth of mid-tier oil marketers.

On dollar shortage, NCBA Group Managing Director John Gachora acknowledged the demand-supply gap in the foreign exchange market attributed to rise in commodities prices but the supply of dollars remains on track with historical trends.

Gachora however noted the need to make it more valuable to hold the shilling vis-a-vis the dollar.

PIEA says high and rising domestic Inflation and strengthening US dollar has impacted cash flows resulting in missed business opportunities and undermined market access.

The industry anticipates a strong growth post election backed by policies that will promote stable business environment and increase in local consumption.

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