Petrol prices in Kenya will from midnight of Thursday the 15th of July 2021 increase to the highest they have ever been in the history of Kenya. That is if the Government of Kenya does not subsidize the increasing costs of Crude Oil in what observers fear might further fan the flames of public outrage as the cost of living in the country is already significantly higher.
Estimates from the Ministry of energy point towards the likelihood that the price of petrol will increase by not less than 3 Kenyan Shillings per litre if no subsidy is put in place. This will move the cost of petrol to 130 Kenyan Shillings per litre in Nairobi, making it the highest price for petrol in Kenya’s history.
The Kenyan Government has however in the past three (3) months offered subsidies to consumers who make use of Kerosene and Diesel with motorists who make use of Petrol, enjoying the benefit during the review in April.
In April of 2021 the Kenyan Government offered a Petrol subsidy of 4.40 Kenyan Shillings per litre and has so far in the past three (3) months spent 7.28 Kenyan Shillings for every litre of Diesel and 13.22 Kenyan Shillings for every litre of Kerosene.
As a result of those decisions the Kenyan Government, was able to effectively ensure that the price for Diesel and the price for Kerosene did not change since April 2021. This also ensured that the fears that increases in said commodities would lead to widespread public outcry, did not become reality.
Had the subsidy not been put in place the price of Diesel was expected to rise by not less than 2.50 Kenyan Shillings per litre by midnight today with the price of Kerosene, increasing by at least 3.50 Kenyan Shillings per litre.
It is feared that Petrol becoming more expensive, would lead to a corresponding pressure on pricing in various sectors of the Kenyan economy which would in turn have severe effects on the cost of living in the country.
The recent increase in the prices of fuel is said to be connected to Crude Oil getting expensive due to indicators showing that the demand for the commodity, is set to increase as economies all over the world recover from the major blows they suffered as a result of the still ongoing Coronavirus pandemic.
The pump prices as things stand, are 67.71 United States Dollars (around 7,316 Kenyan Shillings) per barrel which is significantly higher than the previous price of 63.94 United States Dollars (around 6,908 Kenyan Shillings) per barrel. It is projected that it would rise to as high as 73.10 United States Dollars (around 7,898 Kenyan Shillings) per barrel once the review begins today.
The subsidy in Kenya is coming from a deduction on the margin of Oil marketers. Said margin has been regulated by the Kenyan Government since 2010. It is estimated that dealers have received compensation estimated at almost 2 billion Kenyan Shillings.
The subsidy has also been aided by billions of Kenyan Shillings which were raised from fuel consumers via the Petroleum Development Levy. The Petroleum Development Levy was in July of 2020 increased from 0.40 Kenyan Shillings per litre, to 5.40 Kenyan Shillings per litre signifying a 1,250 percent increase.
While the fund is intended to help protect consumers from the volatility that usually takes place in fuel prices observers believe that motorists are also losing out when the pay the levy of 5.40 Kenyan Shillings per litre at the pump.
Despite the absence of regulations to manage the subsidy plan, the Kenyan Government is making use of the Petroleum Development Levy to do so. It has so far been able to collect 15 billion Kenyan Shillings from motorists since July of 2020, till date.
A number of Kenyans have in recent times via social media, expressed their worries over fewer employment opportunities being available, the reduction in cash flow, and an increase in public debt which also led to them filing a petition to the International Monetary Fund (IMF) to prevent the East African nation of Kenya from receiving any more loans.
The International Monetary Fund (IMF) says that while Kenya was hit quite hard at the beginning of the Coronavirus pandemic its economy, has begun to grow from strength to strength even after the slight contraction of 0.1 percent that it experienced in 2020.
Politicians and policy makers alike have also become aware of the online buzz being generated by individuals in Kenya who are worried about how things are being handled by the government, especially as campaigns for next year’s elections have already begun.
The costs or prices of transport and energy carry significant weight in the basket of goods and services that used in the measuring of inflation in Kenya.
It is expected that producers of services such as manufactured goods and electricity will moving forward, put into consideration the increased cost of petroleum.
For the electricity bills for March of 2021 the energy regulator in Kenya; (google the name before publishing) increased the foreign exchange and fuel adjustment surcharges.
A very large portion of the population in Kenya for example, makes use of Liquefied Petroleum Gas (LPG) and Kerosene and cooking and lighting. This in turn makes the price of Crude Oil a major determinant of the rate of inflation in Kenya.
In Kenya, diesel is also a major fuel for the running of agriculture machinery like tractors, power generation, and the running of vehicles needed for transportation. As a result, the prices of farm produce as well as other perishable goods, will be affected.
A litre of Diesel currently retails for 107.66 Kenyan Shillings in Nairobi from 74.57 Kenyan Shillings that was the case in June of 2020. Petrol on the other hand rose up by 38.04 Kenyan Shillings to 127.14 Kenyan Shillings over the same period.
In June of 2021, inflation rose to its highest over a 16 month period largely as a result of the increased cost of essential commodities like fuel and foodstuff. It increased to 6.32 percent from 5.87 percent a month before. This was a clear indication of the difficulties being experienced by businesses and homes in Kenya whose finances were dealt severe blows by the still ongoing Coronavirus pandemic.
The prices for Crude Oil increased to heights that were last seen three (3) years ago. The increase was aided by the decision by the Organization of the Petroleum Exporting Countries and their allies (OPEC+) to reduce production, as well as the major rollout of Covid-19 vaccines in a lot of high income countries.
Although the demand for Crude Oil is still significantly lower than what was the case before the Coronavirus pandemic, observers still believe that the economic recovery will be much faster than expected, as more and more vaccines are released.
The prices of Crude Oil dropped after a disagreement between Russia and Saudi Arabia over the decision to reduce production in the midst of the Coronavirus pandemic which also came with a corresponding reduction in the demand for energy based on slower economic activities.
In April of 2020 the prices for Crude Oil dropped to as low as 17.64 United States Dollars (around 1,906 Kenyan Shillings). The drop led to a period of time where Petrol was significantly cheaper. This period lasted until August of 2020.
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