(Nairobi, Kenya) – Diesel consumers in Kenya have been denied a KES 14 per litre price cut in the new fuel pricing cycle, which runs through September 14, after the State opted to transfer the relief to petrol and kerosene users.
Diesel prices dropped by KES 5 to KES 217.86 per litre in Nairobi, while petrol and kerosene prices remained unchanged at KES 214.03 and KES 191.38 per litre respectively. The KES 14 per litre reduction equals approximately $0.09 or £0.07, while the Nairobi diesel price of KES 217.86 translates to roughly $1.40 or £1.10 per litre.
A litre of diesel should have dropped by KES 19.28 per litre to KES 203.58 in the capital in line with the fall in global prices, regulatory disclosures show.
The State used diesel to cross subsidise petrol users, preventing the cost of petrol from rising by at least KES 8.64 per litre to KES 222.67 in Nairobi.
Cross subsidisation allows the Treasury to share the subsidy burden with consumers of at least one of the three grades of fuel.
The cross subsidy comes after the State nearly depleted the subsidy kitty it has used to cool costly fuel since April in response to the Iran war.
| Fuel | KES | USD | GBP |
|---|---|---|---|
| Diesel price cut denied | 14.00/litre | 0.09/litre | 0.07/litre |
| Diesel price in Nairobi | 217.86/litre | 1.40/litre | 1.10/litre |
| Petrol price in Nairobi | 214.03/litre | 1.37/litre | 1.08/litre |
| Kerosene price in Nairobi | 191.38/litre | 1.23/litre | 0.97/litre |
| Expected diesel price | 203.58/litre | 1.31/litre | 1.03/litre |
| Petrol increase avoided | 8.64/litre | 0.06/litre | 0.04/litre |
| Government stabilisation | 938,000,000 | 6,000,000 | 4,700,000 |
| Landed petrol cost (current) | 123,112.80/m³ | 948.92/m³ | 748.00/m³ |
| Landed petrol cost (previous) | 115,015.26/m³ | 886.92/m³ | 699.00/m³ |
| Landed diesel cost (current) | 111,004.24/m³ | 855.59/m³ | 674.00/m³ |
| Landed diesel cost (previous) | 127,692.47/m³ | 984.37/m³ | 776.00/m³ |
| PDL on diesel and petrol | 5.40/litre | 0.03/litre | 0.03/litre |
| PDL on kerosene | 0.40/litre | 0.003/litre | 0.002/litre |
| Inflation July | 6.5% | – | – |
| Inflation June | 6.4% | – | – |
MPs earlier flagged the cross subsidy as illegal because it is not supported by the law and disadvantages consumers of one grade of fuel.
The energy regulator opted for the cross subsidy to ease pressure on inflation and Kenya’s middle class, who use petrol to power private cars. Kenya relies heavily on diesel as a core economic driver for public transport, agriculture and backup power generation.
Fluctuations in diesel pump prices directly trigger economy wide inflation, impacting the cost of moving goods, tilling land and running thermal power plants during grid shortfalls.
Inflation edged up to 6.5 percent in July from 6.4 percent in June, driven by elevated transport, fuel and food costs linked to geopolitical tensions.
A rise in the landed petrol costs or price of the product in global markets and shipment to the Mombasa port prompted the State to deploy the cross subsidy to cushion petrol users at the expense of diesel consumers.
“In the period under review, the maximum allowed petroleum pump prices for diesel decreased by KES 5 per litre while the price of super petrol and kerosene remain unchanged due to additional government stabilisation support measures of KES 938 million,” Joseph Oketch, the acting Director General of the Energy and Petroleum Regulatory Authority, said in the notice. The stabilisation support equals approximately $6 million or £4.7 million.
Steep price cuts on diesel could have significantly helped ease inflation.
Landed costs of petrol rose by 6.9 percent to $948.92 per cubic metre last month from $886.92 for a similar quantity in June. In Kenyan currency, that represents KES 123,112.80 up from KES 115,015.26. The dollar figures convert to roughly £748 and £699 per cubic metre respectively.
Diesel prices dropped by 13.08 percent to $855.59 per cubic metre last month from $984.37 for the same quantity in June. In local currency, that is KES 111,004.24 down from KES 127,692.47. The dollar figures equal approximately £674 and £776 per cubic metre respectively.
The State, however, opted to deny diesel consumers the significant price cuts and instead use the product to cross subsidise users of petrol.
But the cross subsidisation model has been contested in the courts with petitioners arguing that it is illegal and unfair to a segment of consumers.
The State heavily subsidised pump prices between April and June this year in the wake of the US Iran war, which disrupted fuel supplies globally and led to skyrocketing prices.
The heavy deployment of billions of shillings in the subsidy scheme nearly depleted the Petroleum Development Levy kitty, forcing the government to turn to cross subsidy in a bid to cushion consumers without choking the Exchequer.
The Exchequer has struggled to pay the subsidy arrears owed to oil marketers, throwing the capital intensive industry into a cash crunch.
The Petroleum Development Levy is raised via collections of KES 5.40 per litre of diesel and petrol and KES 0.40 for every litre of kerosene. One of the critical roles of the kitty is subsidising pump prices whenever global costs of fuel surge.