The State owes oil marketers Sh2.9 billion for the fuel subsidy and the amount is set to rise this month, on extension of the scheme that President William Ruto had said would not be reintroduced. This is based on data from the oil marketing industry.
This includes Sh1.9 billion for the monthly pricing cycle to August 14 and a further Sh1 billion for the June-July period.
The arrears will cross Sh4 billion given that the subsidy has been extended in the current cycle that will end on September 14.
The imposition of the higher rate of Road Maintenance Levy at Sh25 per litre was set to significantly increase prices of diesel and petrol, forcing the government to continue with the subsidy in a bid to avoid public outrage despite increased taxation of fuel.
Dr Ruto had earlier promised that the subsidy on fuel would not be reinstated as the head of State bowed to pressure from the International Monetary Fund (IMF), one of Kenya’s biggest creditors.
In the current pricing cycle, a subsidy per litre of Sh5.2 on diesel, Sh3.4 on petrol and Sh3.83 on kerosene has been applied, in what will increase the debt by an estimated Sh1.6 billion based on the average monthly consumption figures.
The subsidy has in the past hurt the cash flows of oil marketing given that the government withheld working capital and struggled to clear the debt amid growing loan payments that significantly squeezed cash available for other items.
For example, in May last year the government converted Sh45 billion debt for fuel subsidy into a three-year bond in June last year, amid struggles to raise money to pay the oil marketers.
While pushing for its removal, the IMF had faulted the subsidy for budgetary disruptions with Dr Ruto further acknowledging that the subsidy had at times led to an artificial shortage of the very commodity whose prices it was meant to lower.
The current pricing cycle that ends on September 14 marks the second consecutive monthly cycle since early last year where the State has subsidised all three grades of fuel.
Continuation of the subsidy was prompted by the higher road maintenance levy (RML) of Sh25 per litre of petrol and diesel that started last month.
The jump in the RML from the previous rate of Sh18 per litre was set to significantly raise pump prices but the government opted to continue subsiding fuel in a bid to avert public anger over costly fuel.
In early 2022, delays in clearing the subsidy debt owed to oil marketers was largely to blame for the countrywide fuel shortage as the industry silently protested, bringing to the fore the ugly side of the subsidy.
Majority of the oil marketers ramped up borrowing from banks to meet working capital while a number of the small dealers closed down, as the cash crunch mounted over government’s delays in paying the debt.
