Consumers in Kenya hit by fuel and electricity cost shocks

Kenya’s economic situation deteriorated further as consumers woke up to a record increase in fuel and electricity prices in the same week that the nation’s new leader, President William Ruto, was sworn in.

The record-high fuel surcharge comes at a time when the government and the International Monetary Fund have agreed to end the fuel subsidies that have been cushioning consumers.

The abolishment of the fuel subsidy has seen prices surge by about 15 percent, inflicting more pain to households and businesses that are grappling with the skyrocketing cost of living.

In addition to the removal of the subsidy, the situation has been compounded by the weakening shilling against the dollar, and the annual inflation adjustment levy of 6.3 percent.

The levy will be imposed on imports, including fuel (petrol, diesel and kerosene), by the Kenya Revenue Authority (KRA) from October 1.

The levy will result in an increase of excise duty on products such as fruit juices, bottled water, beer, and motorcycles, according to KRA’s Legal Notice on Draft Rates of Excise Duty for Inflation Adjustment 2022.

The shilling fell to a low of Ksh120.41 against the dollar on September 14 from Ksh120.33 against the greenback on September 9, increasing the debt repayment obligations of an economy grappling with over Ksh8.6 trillion ($71.66 billion) debt.

President Ruto, under the Kenya Kwanza coalition, were elected on a platform of economic transformation, administration of justice to all, and the financial empowerment of the masses, popularly known as “hustlers”, through his bottom-up economic model.

Rising retail prices

The regulator, Energy and Petroleum Regulatory Authority (Epra), said the new retail prices of fuel are in line with the cost of imported refined petroleum products and the government’s policy to progressively remove the subsidy.

Following the changes that took effect on Thursday, the retail price of a litre of petrol, diesel and kerosene in Nairobi has increased by Ksh20.18 ($0.16), Ksh25 ($0.2) and Ksh20 ($0.16) to Ksh179.13 ($1.49), Ksh165 ($1.37) and Ksh147.94 ($1.23), respectively.

Epra had retained the retail prices of fuel for July and August, with the pump price for super petrol, diesel and kerosene in Nairobi trading at Ksh159.12 ($1.32), Ksh140 ($1.16) and Ksh127.94 ($1.06), respectively. Earlier, Epra said in a statement that the average landed cost of imported super petrol, diesel, and kerosene for the month of August declined by 24.31 percent, 13.9 percent and 19.07 percent, respectively.

The regulator also noted that although the subsidy on super petrol has been removed, a subsidy of Ksh20.82 ($0.17) per litre of diesel and Ksh26.25 ($0.21) per litre of kerosene had been retained to cushion consumers.

Without the subsidy, the retail prices of diesel and kerosene would have been Ksh185.82 ($1.54) per lire and Ksh174.19 ($1.45) per litre, respectively.

Also read: Kenya’s oil dealers warn of looming fuel crisis

Inflation

The country’s overall inflation rose for the sixth consecutive month to 8.5 percent in August, from 8.3 percent in July, largely driven by high fuel and food prices.

This is against the government monetary goal of five percent, with a flexible margin of 2.5 percent on either side in the event of adverse shocks.

During the week, Epra also raised electricity prices by 15.7 percent, reversing the reduction by 15 percent in January this year.

The regulator also increased the pass-through cost including fuel, forex and inflation adjustments, pushing the price of a kilowatt hour unit to Ksh25.3 ($0.21) for domestic consumers who use more than a 100 units in a month.

KRA’s move to implement the annual inflation adjustment levy will make life even harder for the struggling taxpayers.

The indexation of specific rates of excise duty to adjust for the inflationary erosion of collected taxes was introduced through the Excise Act 2015.

However, the manner in which the new rates were to be adjusted has been reviewed and revised since the Act took effect in December 2015.

In 2017, the adjustment of the specific rates of Excise duty was initially proposed to be made once every two years.

But the proposal was reversed in 2018 to every year, according to consultancy firm Ernst &Young through its Tax Alert (2020).

The Finance Act (2020) amended the provision in the Excise Duty Act relating to annual inflation adjustment by requiring KRA’s Commissioner General to seek an approval from the Cabinet Secretary for Treasury and Planning to adjust the specific rates of duty.

Thereafter, the adjustment notice is expected to be set before the National Assembly within seven days of publication and approved by the Assembly within 28 days.

High taxation

The government has come under heavy criticism for the increase in fuel prices in the country through over taxation, with the cost per litre of fuel consisting close to 50 percent taxes.

Barely two weeks ago, Kenya Pipeline Corporation (KPC) warned of an imminent fuel shortage in Nairobi and the western parts of the country due to the delayed compensation to oil marketing companies.

KPC, which is mandated to transport, store and deliver petroleum products to consumers, said the risk of fuel stock-out has increased owing to low uplifts of AGO (diesel).

In a letter to the Principal Secretary in the state department of Petroleum and Mining, Andrew Kamau, dated September 7, KPC managing director Macharia Irungu said the timely delivery and replenishment of petrol and kerosene has been adversely affected owing to the low uplift of diesel.

“Our mandate to transport petroleum through the multiproduct pipelines to the KPC storage locations has been greatly affected by the low uplifts witnessed since beginning of July 2022,” said Mr Irungu.

“As you are aware AGO (diesel) being the carrier product of all other grades in the pipelines is the most affected with the daily average uplift volume dropping from 11,500 cubic metres to 9,000 cubic metres, marking a 30 percent drop. This has directly affected timely delivery and replenishment of MSP (petrol) and DPK (kerosene).”

According to KPC the low uplifts has led to stockouts and delays in the replenishment of petrol, illuminating kerosene and jet fuel in the KPC locations.