“Fuel Price Stabilisation, Not Fuel Price Subsidy” EPRA Clarifies

Kenya Implements Fuel Price Stabilisation Strategy to Address Public Concerns

In a significant policy reversal, Kenya’s Energy and Petroleum Regulatory Authority (EPRA) has announced the implementation of a fuel price stabilisation strategy aimed at mitigating public discontent over rising living costs. The move comes after President William Ruto initially removed fuel and maize flour subsidies upon assuming office last September, with a focus on subsidising production rather than consumption.

The decision to reintroduce a form of support for consumers follows widespread protests and public anger over the skyrocketing fuel prices triggered by subsidy cuts and recent tax hikes.

The EPRA’s recent statement confirmed that the maximum retail price of a liter of petrol would remain steady at 194.68 Kenyan shillings ($1.35), effectively shielding consumers from a potential 7.33 shilling increase. The government will finance this price stabilisation using a dedicated fund.

Notably, this isn’t a full reinstatement of subsidies; rather, it represents a utilisation of the petroleum development levy to stabilise prices without direct exchequer support. Daniel Kiptoo, the director general of EPRA, clarified that the funds being used had been collected from Kenyan citizens over the past several months, emphasising that this approach does not rely on new exchequer support.

“We are basically giving to Kenyans the money that we have collected over the past couple of months,” said Kiptoo in a press interview

The decision has garnered both praise and criticism. Proponents of the stabilisation strategy argue that it will offer some respite to Kenyan citizens grappling with increased living costs, while critics question the effectiveness of this approach and its potential impact on long-term financial stability.

Petrol station

One of the major driving factors for the move is the recent eight percent increase in value-added tax (VAT) on fuel introduced through the Finance Act 2023, which came into effect on July 1. This legislation led to a considerable surge in fuel prices, further exacerbating the economic burden on Kenyan consumers. Consequently, EPRA’s decision to stabilize fuel prices aims to mitigate the potential adverse effects of these increases.

The energy regulator’s stance remains clear: the strategy is not a subsidy but rather a form of stabilization that aims to prevent excessive price fluctuations. This approach is consistent with the “Kenya Kwanza” administration’s policy objectives, which emphasises stability without necessarily employing traditional subsidy methods.

Oil marketing companies (OMCs) have expressed mixed reactions to the strategy. Some OMCs are concerned about unpaid debts that have arisen due to past subsidy arrangements, with the accumulated debt amounting to over 45.8 billion Kenyan shillings. The Kenyan government has issued bonds to manage these obligations, but concerns about taxpayers incurring additional interest payments persist.

While the EPRA’s decision may bring some immediate relief, the debate surrounding the strategy’s effectiveness and long-term implications continues. Critics highlight that taxes still account for a substantial portion of fuel costs, and some argue that a broader approach may be required to tackle the underlying economic challenges faced by Kenyan citizens.

A group of Kenyans in Nairobi CBD protesting high cost of living /File image

“The petroleum development levy was put in place to amongst other things cussion Kenyans from spikes in petroleum pump price.” added Kiptoo

The decision also raises questions about the broader economic landscape in Kenya, with President Ruto grappling with a complex web of economic choices that aim to balance fiscal responsibility with addressing citizens’ concerns. As his administration navigates these challenges, finding a sustainable solution that balances the needs of the citizens with long-term financial stability remains paramount.

As the debate unfolds, it’s clear that the fuel price stabilisation strategy represents a significant step in addressing the immediate concerns of Kenyan citizens. Whether this approach will provide the desired relief from rising living costs or introduce further complexities to the economic landscape remains to be seen.


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