Kenyan government suspended the utilisation of a fuel stabilisation fund in its latest monthly fuel review cycle, which has seen pump prices leap by more than 13 percent per litre on average.
The rise in the cost of fuel has the overall effect of increasing transport costs, worsening inflationary pressures, increasing the cost of doing business and generally slowing down the rate of economic activities in the country.
Last month (August) the government used Ksh1.8 billion ($12.32 million) of an estimated Ksh3.5 billion ($23.97 million) in the Petroleum Development Fund (PDF) to stabilise fuel prices for 30 days.
But economists questioned the sustainability of the fuel stabilisation plan in the wake of expectations of higher international oil prices and the possibility of further sliding of shilling.
“Expectations of higher international oil prices and the possibility of further shilling weakness will test the government’s commitment to contain fuel prices in the coming months,” said Jacques Nel, head of Africa Macro at Oxford Economics Africa.
“The Kenyan government has blinked in its battle against subsidies. Fuel pump prices will be kept stable this pricing cycle (August 15-September 14) despite fundamentals requiring upward adjustments, with the Petroleum Development Fund footing the bill,” added Mr Nel through a daily market note dated August 15.
This comes as the government through KCB Group mobilises dollars to pay off over Ksh72 billion ($493.15 million) in initial payment to Gulf Petroleum Conglomerates under the oil import Credit Scheme that the government signed with the Gulf countries to reduce dollar shortage and pressure on the shilling exchange rate.
The first payments to Saudi Aramco, Emirates National Oil Corporation (Enoc), and the Abu Dhabi National Oil Corporation Global Trading (Adnoc) are due this month.
Last week, in its latest monthly fuel review cycle, the Energy and Petroleum Regulatory Authority (Epra) increased the retail prices of Petrol, Diesel and Kerosene in Nairobi by a total of Ksh71.41 ($0.48) per litre without further cushion to consumers.
This pushed up the prices of these commodities by an average of 13.13 percent.
The price of Super Petrol in Nairobi increased by Ksh16.96 ($0.11) per litre, while that of Diesel and Kerosene increased by Ksh21.32 ($0.14) per litre and 33.13 ($0.22) per litre respectively.
As a result, the new price of Petrol, Diesel and Kerosene for the next one month will stand at Ksh211.64 ($1.44) per litre, Ksh200.99 ($1.37) per litre and Ksh202.61 ($1.38) per litre respectively.
The Energy regulator attributed the sharp increase in price of refined petroleum products to a battered shilling exchange rate and soaring landed cost of imported petroleum products.