Rising fuel prices in Kenya: What do you need to know?

Russia’s invasion of Ukraine in Europe does have far reaching effects, as it has affected global oil prices driving them to their highest levels in nearly a decade. This is because Russia is the world’s largest oil exporter to global markets, according to the International Energy Agency. While most western nations including the US and the EU have imposed strong economic sanctions on Russia, even as the war continues, it is difficult to put an embargo on its oil and gas, and despite strong talk, Russia’s oil and gas still continues to flow to European nations. We’ve been here before- it happened in 2008 when Russia invaded Georgia and in 2014, when it annexed Crimea. The latest sanctions package from Europe, unsurprisingly bans other fuels such as coal from Russia, but stays away from its oil and gas.  

How this has affects us in Kenya, is that in the short term there were steep fuel price hikes, which ideally have to be borne by the Consumer. However, the  Kenyan energy regulator, the Energy and Petroleum Regulatory Authority (EPRA) which sets fuel prices monthly further to the Petroleum Act, 2019 and attendant legal notices, had already published retail prices for the period 15th of February 2022 to 14th of March 2022, by the time Russia had invaded Ukraine on February 22.  So we knew the prices would reflect in the next monthly cycle. This it did when both petrol and diesel were increased by KES 5 per litre, even as the government still cushioned it from going up further by providing subsidies from the Petroleum Development Levy Fund.

The Petroleum Development Levy was introduced in 1991 and has been active since 1998 when Kenyans started contributing 40 cents per litre of petrol which jumped to KES 5.40 per litre in the 2020/21 financial year. What this means is that Kenyans have paid taxes for more than 20 years to the Fund that should subsidize high oil prices and shield them, and it still wasn’t enough. 3 days ago, the President signed a supplementary budget allocating about KES 34 Billion to the Fund, and the latest budget read today by the Treasury Cabinet Secretary allocates KES 24.7 Billion more to cushion Kenyans in the coming 2022/23 financial year. Both EPRA and the Kenya Pipeline Company(KPC), the latter tasked to ensure steady supply of fuel, blamed the current fuel shortages to failure by the government to disburse these fuel subsidies to oil marketing companies. There is more to this of course, as we have seen franchised oil marketers still selling when small independent oil marketers, who control almost half of the market in Kenya, had no supplies and complained of cash crunches due to delayed subsidy payments.  The energy regulator, and probably soon, the Competition Regulatory Authority may investigate whether there was hoarding and abuse of dominant power, respectively, that has led to our current state of affairs.

A current bill introduced in October 2021 before the National Assembly, the Petroleum Products (Taxes and Levies) (Amendment) Bill, 2021, seeks to make sense of the current petroleum pricing framework by regulating such drastic price hikes in Petroleum, providing accountability of how future taxes and levies will be imposed and how the Petroleum development Levy Fund will be governed- it needs to be a priority for legislators. However, the petroleum development levy is only one tax, and far from the highest- there are 8 other taxes subjected to petroleum in Kenya. Taxes and levies account for almost half of every litre of petrol and diesel in Kenya. Excise duty is by far the biggest chunk at about KES 22 per litre of petrol followed by road maintenance levy at KES 18, and VAT at KES 10. Other taxes include the petroleum regulatory levy, railway development levy, anti-adulteration levy, merchant shipping levy and import declaration fees. These taxes need to reviewed if fuel prices are to be sustainable for Kenyans.

For as long as one imports oil, one will be subject to global prices, affected by current markets, and the current crisis could not have made a better case to completely pivot towards renewable energy, electromobility(e-mobility) and cycling in Kenya. We currently have about 350 electric vehicles registered with a majority being motorcycles. An e-bus recently flagged off by Opibus, if commercially operational, would go a long way to reduce mass transit reliability on diesel, as well as reduce air pollution and boost climate change efforts, and jobs, in Kenya. Average costs for electric vehicles at about KES 4 Million per mini-bus and KES 1.5 Million for small vehicles are still way above the average Kenyan, and the government should look towards boosting this sector through eliminating excise duty and providing better financial incentives for Kenyans to go green and change lifetime habits.  32% of Kenyans walk to work according to a 2020 Kenya National Bureau of Statistics Survey, with almost 50% of Nairobi residents doing so, according to a 2016 World Bank report, which is why the lack of dedicated pedestrian walkways and further cycling lanes in many Kenyan roads needs to be addressed.

So what can you do? You can challenge current legislators to pass the draft law before them seeking to govern petroleum prices in Kenya, as well as challenge those running for upcoming elections in August 2022 to give you proposals on what other taxes they will target to reduce the economic burden on Kenyans, and which taxes, financial incentives and policies they will promote to encourage Kenyans towards investing and taking up e-mobility, cycling and walking.

If you wish to learn more about energy taxes in Kenya, please reach out to me at halima@hawahussein.com

Photo credit: NationMediaGroup/Jared Nyataya, 2022 https://nation.africa/kenya/counties/fuel-crisis-acute-fuel-shortage-hits-eldoret-and-parts-of-north-rift-3763104

#petroleumdevelopmentlevy #petroleumdevelopmentlevyfund #petroleumprices #petroleumtaxes #fuelsubsidies #petroleumact #EPRA #KPC #e-mobility #renewableenergy #businessinAfrica #kenya

Russia’s invasion of Ukraine in Europe does have far reaching effects, as it has affected global oil prices driving them to their highest levels in nearly a decade. This is because Russia is the world’s largest oil exporter to global markets, according to the International Energy Agency. While most western nations including the US and…

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