Kenyan motorists face double pain at the fuel pump

The pump price is likely to go up if a proposal by the Kenya Roads Board to have the petroleum levy increased is adopted. Photo/FILE  NATION MEDIA GROUP

By Herbling David

In Summary

• The proposal seeks to have motorists pay Sh9 more per litre of fuel to finance the increased cost maintaining an expanded roads network. If adopted, motorists will pay Sh18 for every litre of petrol or diesel — pushing up pump prices by nearly 10 per cent.
• The roads agency argues that the current rate of the levy, set in 2006, is no longer feasible given the rise in cost of raw materials, labour and transport.
• KRB calculations show that Kenya needs Sh50 billion per year to maintain its roads and doubling the fuel levy would help bridge the financing gap.

The Kenya Roads Board (KRB) has proposed a doubling of the petroleum levy in a move that could significantly increase the cost of transport countrywide.

The proposal seeks to have motorists pay Sh9 more per litre of fuel to finance the increased cost maintaining an expanded roads network.

If adopted, motorists will pay Sh18 for every litre of petrol or diesel — pushing up pump prices by nearly 10 per cent.

“To accommodate this increase in construction costs, we propose that the rate be increased to Sh18,” the roads board says.

The roads agency argues that the current rate of the levy, set in 2006, is no longer feasible given the rise in cost of raw materials, labour and transport.

The KRB, which collects the duty and manages the Road Maintenance Levy Fund (RMLF), has written to the Treasury, saying the seven-year freeze on the Sh9 levy charged on every litre of petrol has strained the fund, forcing it to scale down its work.

“We are engaging the Treasury, through the Ministry of Transport, to review the fuel levy,” said Francis Nyangaga, the KRB executive director. “The cost of road works has doubled since the last review, extremely stretching out the fund.”

The KRB wants the new rate to come into effect next year, a move that could spark a fresh wave of inflationary pressure in the wake of a recent rise in consumer prices following September’s introduction of value added tax (VAT) on a wide range of basic services and goods.

Transport is a key service whose pricing affects costs in all sectors of the economy.

“It will result in cost-push inflation as a result of the increases in cost of goods and services given that fuel is a primary resource for industrial producers,” said Atul Shah, chief executive of PKF Eastern Africa.

“Fuel touches on everything and the ripple effects will be significant. The burden will be borne by consumers.”

But Dr Nyangaga argued that even though the additional cost will be painful to consumers, maintaining a sound road network helps reduce poverty by lowering the cost of goods and services, improving access to social facilities, administration centres and improving safety and security.

A litre of diesel and kerosene is projected to go up by about 10 per cent to retail at Sh121.27 and Sh113.47 respectively going by the current pump prices set by the Energy Regulatory Commission (ERC) for Nairobi.

Higher diesel prices would particularly increase the cost of producing and distributing goods given that it is the main fuel for machinery in the agricultural sector, which contributes almost a quarter of Kenya’s gross domestic product (GDP).   

This will result in higher food prices and the subsequent rise in the cost of living or inflation means consumers will have to spend more to acquire the same amount of goods.