The Treasury has revealed that Kenya used billions of shillings in taxpayer funds to subsidise fuel prices, contradicting State House’s publicly stated position that the country had reversed the policy of subsidies on petroleum products.
Official documents show the Treasury spent more than Sh47.26 billion between April and June to stabilise retail fuel prices, with a significant chunk of the cash coming from taxes.
On coming to office in September 2022, President William Ruto removed fuel and maize flour subsidies put in place by his predecessor, Uhuru Kenyatta, saying he preferred subsidising production rather than consumption.
The move was also aimed at cutting government spending in an economic setting where debt repayments were eating up more than half of taxes.
Instead, the government will shoulder part of the fuel prices through a price stabilisation fund—which is built from monthly deductions of consumers charged at the rate of Sh5.40 per litre of fuel.
But the Treasury data shows the fund was inadequate in preventing a surge in petrol prices, forcing the State to dip into taxes.
The Sh47.26 billion overshot Sh24.88 billion that had been allocated to the subsidy scheme for the full-year period by 89.98 percent or Sh22.39 billion.
“These subsidies (Sh47.26 billion) relate to petroleum products and were used to stabilise prices of fuel when there were sharp increases in prices due to movement in global fuel prices.
“A portion of it came from exchequer (taxes),” said Albert Mwenda, the director-general for Budget, Fiscal and Economic Affairs at the Treasury.
“Ideally, fuel price stabilisation should be funded from the Petroleum Development Levy (PDL) and not from exchequer resources.”
President Ruto had upon taking power in September 2022 pledged that his administration would not subsidise pump prices beyond what is collected through the Petroleum Development Levy, terming the cushion unsustainable.
This was part of the conditions set by the International Monetary Fund (IMF) for Kenya to continue accessing billions of shillings towards budgetary support.
Fuel prices shot up when Dr Ruto removed the subsidies. They spiked again in July last year after the government pushed through Parliament the Finance Bill that doubled the fuel tax, sparking public anger over the high cost of living.
Mr Mwenda said “a portion” of the subsidy funds tapped in the fourth quarter of the last financial year “came from exchequer”.
It was not immediately clear how much cash was withdrawn from the government’s main account for the subsidy.
The PDL, a fuel stabilisation fund, was created by the previous administration of Mr Kenyatta in 2021.
The fund draws its cash from deductions at the pump at the rate of Sh5.40 per litre of petrol and diesel while largely poor households who use kerosene for lighting and cooking pay Sh0.40 for each litre they buy.
The fund is used to compensate oil marketing companies (OMCs) when oil prices breach a threshold set by the Energy and Petroleum Regulatory Authority (Epra).
Fuel prices have a big effect on inflation in Kenya, which relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in low-income homes for cooking and lighting.
Households and businesses witnessed a gradual and steady fall in cost of fuel between December 2023 and June 2024, helping ease inflationary pressure in an economy where a number of key economic sectors such as agriculture and transport depend on diesel and petrol to run.
Analysis of official data collated by the Kenya National Bureau of Statistics shows average prices of petrol, diesel and kerosene fell by double-digit rates between last December and June.
Motorists paid Sh190.46 per litre on average in June, a drop of Sh22.51, or 10.57 percent, compared with the December price of Sh212.97, while diesel’s fell Sh28.38, or 14.03 percent, to Sh173.83 per litre on average.
Kerosene prices fell by the biggest margin per litre in that period, retailing for Sh163.83 per litre on average – a Sh35.96, or 18.0 percent, contraction from Sh199.78 last December.
Epra had largely linked the successive fall in retail prices, which are set on the 15th of every month, to the strengthening of the shilling against the dollar since mid-February amidst a slowdown in global demand for oil.
The subsidy tapped to cushion the economy from elevated fuel prices in the review year was, however, smaller than Sh61.53 billion in the year ended June 2023 and Sh80.67 billion in the one ended June 2022.
The Kenyatta administration spent a record amount to cushion consumers from high prices of fuel, electricity and staple maize flour ahead of the August 2022 General Election.
The Ruto administration, however, struggled to pay up debt carryovers owed to oil marketers since the subsidy scheme started in April 2021.
The persistent struggles to get funds to clear the arrears to oil marketers prompted the Treasury to convert Sh45 billion debt for fuel subsidy into a three-year bond in June 2023.
The Treasury floated the bond in two tranches, with the first sale targeting raising Sh17.5 billion at an interest rate of 14.22 percent.
Conversion of the arrears into a bond came despite protests by a section of oil marketers amid biting cash-flow hitches that forced them to increase borrowings.
