The government has disbursed Sh7.9 billion to oil marketers in a move aimed at easing liquidity pressures in the petroleum sector and helping stabilise fuel supply chains.
“The money was paid to importers who will then pay the respective oil marketers based on the volumes lifted,” said Kello Harsama, the Principal Secretary in the State Department of Petroleum.
Payment for the May 15–June 14 cycle is expected to support the oil industry, which in recent months has encountered challenges due to funding hitches tied to outstanding subsidies.
The combination of pending payments and costly fuel due to the US–Israel war on Iran made it difficult to transport adequate quantities of fuel, resulting in shortages which were largely felt in May.
“Two weeks ago, we paid Sh7.9billion for subsidy arrears of the May-June cycle. We expect the importers to wire the money to the respective oil marketers. We now have an obligation to settle the arrears for the June-July cycle,” Mr. Harsama said.
This meant that the pending subsidy was Sh10 billion for this month’s cycle that ends on July 14.
“The piling subsidy arrears had squeezed the industry’s ability to purchase fuel that became costly in the market stocks tied to the US-Israel war on Iran,” the oil marketers warned in May.
Station operators for Vivo Energy Kenya and Rubis Energy Kenya and a number of small marketers were severely affected since April, with the irregular fuel supply leading to panic buying over fuel shortages.
Diesel, petrol and kerosene prices increased in March due to the supply and transport disruptions caused by Iran’s attack on oil refineries in the Gulf region and the closure of the Strait of Hormuz, where almost a quarter of the world’s fuel passes through.
In addition to high fuel costs, the oil marketers are required to make advance tax payments before accessing fuel from the Kenya Pipeline Company (KPC) system for sale in the local market. These two measures became way more difficult much more difficult due to the funding struggles.
The subsidy fund is financed by the Petroleum Development Levy of Sh5.40 per litre of diesel and petrol and Sh0.40 per litre of kerosene.
Misuse of funds to cater for items beyond regulatory limits governing the use of PDL kitty and large subsidies have almost exhausted the Petroleum Development Levy Fund.
The subsidy has been vital in preventing pump prices from increasing due to the effects of the US-Israel war on Iran that resulted in higher refined fuel prices.
For instance, diesel and petrol prices could have escalated by Sh64.92 and Sh33.37 per litre in the monthly cycle from April 15 had there been no government support for prices and cut a cut in Value Added Tax from 16 percent to 13 percent. The prices surged by Sh40.30 and Sh28.69 per litre of diesel and petrol, respectively.
– By Salome Thiani
