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Why motorists failed to access diesel subsidy


Economy

Why motorists failed to access diesel subsidy


Petrol-station

A petrol station attendant. FILE PHOTO | NMG

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Summary

  • The Energy and Petroleum Regulatory Authority (Epra) said that the regulations to manage the subsidy were not yet ready despite the State having collected at least Sh10 billion from motorists since July.
  • During the Sunday review, diesel prices in Nairobi rose by Sh5.51 a litre to Sh101.91—the highest since February last year.
  • Petrol rose Sh8.09 to Sh115.18 per litre, the highest mark since July 2019, putting pressure on transport costs and inflation.

A legal hitch has denied motorists a fuel subsidy following the sharp rise in petrol and diesel costs despite the State collecting more than Sh10 billion from homes and business to stabilise prices.

Under the subsidy scheme that excluded petrol and started in July Kenyans were not expected to bear costs of diesel prices above $50 a barrel.

The energy regulator reckons that the subsidy was excluded in the Sunday monthly review of diesel prices despite the fuel being based on average crude cost of $55.27.

The Energy and Petroleum Regulatory Authority (Epra) said that the regulations to manage the subsidy were not yet ready despite the State having collected at least Sh10 billion from motorists since July.

During the Sunday review, diesel prices in Nairobi rose by Sh5.51 a litre to Sh101.91—the highest since February last year.

Petrol rose Sh8.09 to Sh115.18 per litre, the highest mark since July 2019, putting pressure on transport costs and inflation.

“The regulations to operationalise the levy are being developed in order to set up structures on how the fund will be managed,” Epra acting director-general Daniel Kiptoo told the Business Daily.

The subsidy has been supported by billions of shillings that has been raised from fuel consumers through the Petroleum Development Levy, which was increased to Sh5.40 a litre in July from Sh0.40, representing a 1,250 percent rise.

The fund is meant to cushion consumers from volatility in fuel prices but it will also see motorists lose out when paying the Sh5.40 for a litre at the pump.

Local diesel prices have since July been based on crude costs of below $50 on reduced global demand in the wake of the coronavirus outbreak.

The price of oil has recovered to its pre-pandemic levels having hit an all-time low last year.

While demand for oil is still lower than normal, there are hopes of a speedier than expected economic recovery as vaccines are rolled out.

Oil prices are often seen as a barometer for economic activity, still struggling with the virus downturn.

‘Black gold’ has now reached $63 a barrel having risen more than 50 percent in the last few months.

But local motorists will wait longer for the subsidy promise following delays in approving the regulations at the Attorney-General’s office.

“We decided on a design here if the price per barrel hits past $50, then the fund pays us for every dollar above. We looked at the development levy to have more savings so that the next time we are caught off-guard, we shall have something to cushion the mwananchi,” Petroleum and Mining Principal Secretary Andrew Kamau told MPs in September.

“This will be used to subsidise diesel alone but will be collected from petrol and diesel. Diesel is the most used by mwananchi.”

The economy uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.

Crude oil prices plunged after a fallout between Saudi Arabia and Russia over production cuts in the wake of the Covid-19 pandemic and depressed demand for energy on slowed economic activities.

But reduced tension between China and Saudi Arabia, backed by increased road traffic in some of the world’s major cities in June, sparked a rally in crude oil prices.

Kenya quoted average crude prices in February last year at $56.10, which fell $17.64 in April before starting a marginal increases.

The subsidy levy is expected to raise nearly Sh30 billion annually, up from the Sh2.28 billion collected last year.



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