Kenyans should brace themselves for higher cost of essential commodities following a Sh5.50 hike in the retail price of fuel.
The hike took effect despite the government retaining the fuel subsidy that it has used to cushion motorists from the rise in cost of crude oil against a weak shilling.
The Energy and Petroleum Regulatory Authority (Epra) yesterday raised pump prices of the three major petroleum products, whose price is regulated.
The Authority cited higher costs of crude oil over the month of April and early May when the stocks that will be consumed over the May-June pricing cycle were acquired.
Following the hike, super petrol will now retail at Sh150.12 per litre in Nairobi over the next one month, up from Sh144.62, while diesel will retail at Sh131 a litre in the city up from Sh125.50.
Diesel is heavily used in the transportation and manufacturing industries, and the increase is expected to be felt by Kenyans as industries will be forced to raise the cost of commodities to reflect the increase.
Kerosene will retail at Sh118.94 per litre in Nairobi, up from Sh113.44.
“The average landed cost of imported super petrol increased by 1.46 per cent… diesel increased by 6.49 per cent… while kerosene increased by 31.13 per cent,” Epra said in a statement announcing the price capping guide for the May-June cycle.
It also noted that prices would have been higher, but the government applied a subsidy.
Kerosene, which is mainly used by the poor for lighting and cooking, was subsidised by the highest margin of Sh50 per litre, without which pump prices would have jumped to Sh169.26 per litre.
Diesel was subsidised by Sh43.94 and in the absence of the subsidy, it would have retailed at Sh174.94. Super petrol was subsidised by Sh26.35 and prevented it from reaching Sh176.47.
The new prices come amid the supply shocks experienced in April that were linked to the subsidy.
Last month, the country experienced major shortages which were partly attributed to a protest by major oil marketing companies that had been demanding delayed payment of their margins by the government.
The oil marketers allegedly withheld products from the Kenyan market while diverting fuel to neighbouring countries in a bid to compel the government to fast-track their payments.
When determining retail prices, Epra normally cuts the margins that would go to the oil firms so as to keep pump prices low.
The companies are then compensated later by government, a process they have said takes too long and denies them cash flow for their operations.
This has been the norm since April last year when government started cushioning Kenyans from the high cost of fuel.
The Petroleum Ministry, in a report to Parliament in April, said the state had spent Sh49.2 billion – paid to oil marketers – to keep the fuel prices in the country at a reasonable margin.
The money is drawn from the Petroleum Development Levy (PDL) Fund, a kitty financed by motorists who pay Sh5.40 per litre of super petrol or diesel that they consume.
The Ministry has in the past said the subsidy is unsustainable, noting that while it collects about Sh2 billion per month, it has been spending about Sh8 billion.
This is especially so over the last couple of months when global oil prices have shot up on account of growing demand as economies shake off the impact of Covid-19 and the more recent Russian invasion of Ukraine.
According to Epra data, oil prices went up to $93.99 (Sh10,808) per barrel in April compared to $85.11 (Sh9,787) per barrel in March.
This has been the trend for the last year, where oil prices have been going up due to increased demand globally. In June last year, a barrel of crude oil was going for $63.35 (Sh7,285).
The shilling has also weakened against the US dollar, trading at Sh115.74 to the dollar in April compared to Sh114.60 in March.
A weak shilling means that oil firms have to use more shillings to import the same amount of fuel.