Why Fuel Prices have Hiked Past Ksh 200 a Litre

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EPRA on September 14th, 2023 midnight announced new fuel pump prices for the month, which will see Super Petrol, Diesel, and Kerosene retail at Kshs.211.64, 200.99 and 202.61 respectively in Nairobi.

According to the energy regulator, the new prices are inclusive of the 16% Value Added Tax (VAT) in line with the provisions of the Finance Act 2023, the Tax Laws (Amendment) Act 2020, and the revised rates for excise duty adjusted for inflation as per Legal Notice No. 194 of 2020.

However, why have the pump prices hiked?

International Markets

The computation of petroleum pump prices takes into account the landed cost (Free on Board/price in the international market), storage and distribution costs, allowed margins, and taxes and levies.

The price of petroleum in the international markets has been on an upward trend due to a number of issues such as the recent production cuts of up to 3.66 million barrels a day (at least 3.6% of the daily world demand) imposed by the Organization of the Petroleum Exporting Countries (OPEC) on its members. This has caused tight supply rallying prices upwards.

The ongoing Russian-Ukraine war has caused sanctions on Russian oil and Russian ships causing a strained global supply. Other factors such as scheduled maintenance of the majority of refineries across the world have also caused a supply gap.

What has the Government of Kenya done?
The Government of Kenya introduced a petroleum pump price stabilization mechanism with effect from 15th July 2023 with the introduction of the Petroleum Development Levy (PDL) as guided by the Petroleum Development Levy Order 2020 used to hold prices constant in instances of spikes.

The Ruto administration has spent KShs. 1.9 Billion in petroleum pump price stabilization since July 2023. It is estimated that another KShs 6.7 Billion will be required for that purpose if the projected increases in the September-October 2023 pricing cycle are realized.

The Petroleum Development Fund that houses the PDL currently holds about KShs. 3.5 Billion which is not adequate for the full stabilization of the September-October 2023 petroleum pump prices.

EPRA stated that it had calculated the maximum retail prices of petroleum products, which will be in effect from Friday to October 14, 2023.

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