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Government to use fuel subsidy to keep prices unchanged

A State subsidy has protected motorists from paying Sh23.29 more for a litre of diesel, keeping pump prices steady for the fourth month in a row. Despite an increase in the cost of exporting the commodity, the Energy and Petroleum Regulatory Authority (Epra) kept the price of diesel in Nairobi at Sh110.60 per litre for the month ending March 14. In the absence of the subsidy, consumers would have paid Sh133.89 for a litre of fuel, while kerosene and super petrol costs were reduced by Sh15.88 and Sh14.53, respectively.

Kenyans currently consume fuel at an average price of $82.03 per barrel, emphasizing the need of the subsidies in the coming months. If the Ukraine situation worsens, Russia’s oil and gas supply to Europe may be disrupted, driving up wholesale prices even more.
Oil and gas supply has failed to keep up with rising demand as the global economy has improved in recent months, and Covid restrictions have lifted.
Kenya implemented the subsidy on April 14 of last year in an effort to calm public outrage over rising basic-goods prices.

“For this cycle, the appropriate pump costs have been kept at the same level as the previous cycle.” In the notification, Epra director-general Daniel Kiptoo said, “The government will use the Petroleum Development Levy to buffer customers from the otherwise high prices.”Fuel prices have hit a new record high at the pump in many countries, tightening the squeeze on consumers. The pump prices are driven largely by the wholesale price of energy, which has shot up due to tensions over the possibility of Russia invading Ukraine. On Monday, oil prices hit their highest level since 2014, reaching $95.56 a barrel.

The subsidy scheme is supported by billions of shillings raised from fuel consumers through the Petroleum Development Levy, which was increased to Sh5.40 a litre in July 2020 from Sh0.40, a 1,250 percent rise. The fund cushions consumers from volatility in fuel prices but has also seen motorists lose out when paying the Sh5.40 for a litre at the pump.The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in Kenya. Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum. In Kenya, the majority of households rely on kerosene and LPG for cooking, making crude price a key determinant of the rate of inflation.

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