Fuel prices hit 100 shillings

The price of fuel hit a historical high of Shs100 per litre of petrol, creating strains on households already struggling with rising food prices.

Fuel stations in Nairobi adjusted their pump prices to Shs100 this week for unleaded petrol and Shs90 for diesel. Oil companies say the price hikes are a direct consequence of rising international crude prices, currently hovering at the $120 a barrel mark.

Kenya’s government has traditionally frowned on continued oil price increases but, in a liberalized market, price controls are out of the question. The Ministry of Energy has, in the past, hinted at reintroducing price controls, repeating the popular refrain that multinational oil companies are “milking” Kenyans. The multinationals defend themselves arguing that with market uncertainties, their margin per litre is worth only a few cents.

The only option Kenya’s government can take in reducing pump prices is by cutting taxes, which currently constitute almost half of what Kenyans pay for fuel. However, the government is unlikely to starve itself of revenue especially with a giant, 40 member cabinet putting pressure on state funds. Political promises made in last year’s presidential campaigns will require billions of shillings to become a reality. Reconstruction in the wake of ethnic and political violence early this year necessitates additional taxation on the economy.

So much is the pressure on the state to fund reconstruction and development that a major fund raising was held last Monday to raise Shs29 billion from well wishers. Less than Shs1 billion has been collected so far.

Oil companies have blamed the Kenya Revenue Authority (KRA) for high pump prices. Two years ago, KRA introduced the collection of advance tax payable at the port of Mombasa before oil is allowed into the country. Advance tax forces oil companies to borrow money. Interest payments on the loans places extra costs on oil, so much that when advance tax was introduced, prices immediately shot up by Shs3 a litre. The KRA is happy, saying that advance tax has almost eliminated oil smuggling.

International analysts fear that crude prices could reach $200 a barrel before the end of the year. If that prediction passes, Kenyans should brace for harsh economic times. An impoverished population hit by rising prices should be a cause for concern to Kenya’s ruling elite.

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