The government has reinstated the fuel subsidy programme barely a year after scrapping it, citing the need to cushion consumers from rising pump prices after collecting Sh4 billion through the Petroleum Development Levy from motorists.
The Energy and Petroleum Regulatory Authority confirmed that the subsidy will now be used to lower retail prices of petrol and diesel in the monthly price review after fuel costs surged toward record highs driven by global crude spikes and a weakening shilling.
Officials said proceeds raised from the levy over the past three months provided enough fiscal space to reintroduce a limited price stabilisation measure without immediately straining the exchequer.
In the fresh move, the State will compensate oil marketers to keep the price of super petrol below Ksh195 per litre and diesel below Ksh175 per litre in Nairobi.
Energy ministry insiders indicated the subsidy could shave off between Ksh7 and Ksh10 per litre, depending on international price movements.
Treasury officials however cautioned that the subsidy is temporary and will be reviewed monthly based on the balance in the levy fund and the global pricing outlook.
The decision signals a policy shift by the government, which last year said subsidies were unsustainable and a drain on public coffers. This change comes amid mounting public pressure over the high cost of living and the threat of political unrest triggered by escalating fuel prices which ripple through transport and food costs.
Economists describe the move as a tactical retreat aimed at buying time while inflationary pressures persist, warning that long-term reliance on subsidies could distort the market and crowd out other development spending.
Transporters and manufacturers welcomed the intervention but insisted the government must simultaneously address inefficiencies in the supply chain, taxes and levies that make Kenyan pump prices among the highest in the region.
The development comes as global oil prices hover near $80 per barrel, raising fears of more economic pain should no sustainable solution be found.
Written by Ian Maleve
