In Kenya, fuel prices has increased by the biggest margin ever recorded in over a decade. Motorists in Nairobi will pay Sh91.87 per litre of diesel from Sh74.57, representing a Sh17.30 increase. While Sh11.38 increment has been added to purchase a litre of super petrol.
The Energy and Petroleum Regulatory Authority (EPRA) linked the expensive fuel to the recovery in crude oil prices. Crude oil prices increased the cost of imported refined fuel, and the increase in the petrol levy to Sh5.40 from Sh0.40, representing a 1,250 percent rise.
The levy was quietly introduced on July 10 through a gazette notice. Through the levy, the State will collect about Sh2 billion monthly from fuel consumers.
According to the EPRA, the prices are inclusive of the revised rates for Petroleum Development Levy. Furthermore, the EPRA said that the cost of refined petrol, diesel and kerosene rose in line with the rebound in crude oil prices.
Kerosene prices rose to Sh65.45 in the capital city, up from Sh62.46 in June, reflecting a Sh2.98 rise. The energy regulator said the new fuel prices are based on the crude cost of $36.34 in June. This represents an increase from $23.55 posted in May and $17.64 April.
Falling Demand for Crude Oil
Crude oil prices plunged after a fallout between Saudi Arabia and Russia over production cuts in the wake of the coronavirus pandemic. The pandemic has also reduced demand for energy on slow economic activities.
However, reduced tension between China and Saudi Arabia has sparked a rally in crude oil prices. Alongside increased road traffic in some of the some of the world’s major cities in June.
The costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country.
Producers of services such as electricity and manufactured goods are also expected to factor in the higher cost of petroleum, unleashing pricing pressure across the economy with ramifications on the cost of living measure.
In Kenya, for instance, most of the population relies on kerosene and gas for lighting and cooking. This makes crude oil price a key determinant of the rate of inflation.
The economy also uses diesel for transportation and power generation. Furthermore, it uses it to run agricultural machinery such as tractors with a direct impact on the cost of farm produce.
Inflation rose from 4.59 percent in June from 5.33 percent in January, largely driven by cheap fuel and food prices.
Cushioning Large Fuel Prices Margin
The Petroleum Principal Secretary Andrew Kamau said the additional billions of shillings raised from the Petroleum Development Levy will be used to subsidise fuel prices when they rise by large margins.
“We had a low of $25 per barrel in March and $42 per barrel in July, what are the chances that it could go to $100? We want to cushion particularly those who use diesel because the fuel is used widely in the economy and when prices spike, we can help limit the effects to the economy,” Mr Kamau said.
He did provide details on the how the subsidy scheme will work.
Petroleum dealers have been complaining of being left with expensive unsold fuel since April after review of monthly prices.
In April, the government imposed a daily dusk-to-dawn curfew. It also barred movement in and out of Kenya’s five counties most affected by the virus, including Nairobi and Mombasa.
The marketers said the restrictions have sapped demand for diesel and petrol.
Kenya on July 6 announced a phased reopening of the country from the Covid-19 lockdown. Gradually lifting restrictions on travel and allowing air travel to resume. The easing of the restrictions is expected to increase demand for fuel.