Oil marketers have voiced concerns about the government’s last-minute decision to reduce diesel prices by Sh10 per litre through a Sh2.7 billion subsidy, as well as its failure to clear arrears from previous subsidies.
They said the government’s failure to clear arrears from the previous subsidies has triggered a cash crunch in the industry.
Industry executives said oil marketers were not consulted on the decision to increase the diesel subsidy, which they claim adds to the nearly Sh20 billion in unpaid arrears that are hurting their cash flows.
The government’s decision increased the diesel subsidy to Sh24.57 per litre, reducing prices to Sh232.86 in Nairobi.
Despite the government agreeing to lower the diesel price by about Sh10 a litre, negotiations on Monday, the first day of the strike, failed to reach an agreement.
The public transport strike over fuel price hikes triggered by the Iran war was called off on Tuesday, after the government reached an interim agreement with the lobby representing bus and minibus owners to pause the protests for seven days.
Last night’s decision will cost Sh2.7 billion in additional subsidy, bringing to Sh16.6 billion the subsidy bill for the two monthly cycles since April 15, with the industry now jittery on when the debt will be paid.
‘They did not involve us in the talks. As an industry, we are assessing the situation from a working capital perspective. We were kept in the dark about it and they just sent emails on the price changes via SupplyCor,’ said an executive.
‘The subsidy is obviously bigger given the additional Sh10 per litre of diesel. Monies owed to us are piling and seemingly the government does not care if we have the means to finance the product,’ said the executive.
SupplyCor is the secretariat for oil marketers in Kenya and liaises with the Ministry of Energy and Petroleum and the energy regulator to coordinate importation of fuel and also the monthly computation of prices.
‘On the matter of the subsidy alone, between last month and this month, the government has applied some Sh13.9 billion to manage the cost of fuel. Last night’s reduction by Sh10 on the cost of diesel took some Sh2.7 billion,’ Energy and Petroleum CS Opiyo Wandayi said on Tuesday.
Besides the Sh16.6 billion for the two months, oil marketers have cited an additional subsidy debt of Sh1.7 billion, which has been verified but is yet to be paid, and another Sh9 billion awaiting verification.
Delays in settling the subsidy arrears have been blamed for the erratic fuel supply, which has hit the country since last month, as oil marketers grapple with thinning capital against the costly fuel.
Stations owned by major retailers such as Vivo Energy and Rubis Energy Kenya and dozens of others outside the major cities, have been grappling with erratic supplies since last month.
The inconsistent supplies have been blamed on thinning working capital, which has made it increasingly difficult to get fuel from the system of the Kenya Pipeline Company (KPC).
Oil marketers must pay fuel taxes upfront before evacuating their product from the KPC system, laying bare the tribulations that have forced many to seek bank loans and others to shut down.
The government has, in the past, been unable to pay subsidy arrears owed to oil marketers, underscoring the fear currently building up in the industry.
In 2023, the government floated a bond to clear a Sh45.8 billion debt that had piled up under the fuel subsidy scheme. The industry says the government is mishandling the fuel prices crisis, raising questions on the apparent lack of prior engagement even before the new prices were announced on May 14.
‘The government can engage specific players, but this should have happened well in advance to get ways of moving forward and look at all options,’ said another executive.
‘With the bigger subsidy, the industry under-recovery is getting worse; you have a new problem now.
The government is opening more debt, and they are failing at the technical aspects of this crisis,’ added an industry insider who requested anonymity.
Higher landed costs of fuel mean that oil marketers are using more cash to buy the same volumes of fuel. The need for increased funding has forced many to seek bank loans, while the smaller ones are being forced to shut down operations.
Another industry executive says that marketers will increasingly find it difficult to buy products given that the additional subsidy and delayed compensation will eat into the working capital, making it hard to pay for the expensive fuel.
‘What this does is that the industry will plunge deep into chaos unless the government moves quickly and clears the money. The subsidy debt has deprived marketers of billions of shillings to pay for fuel and taxes, and this is seen in the erratic supplies,’ said another executive.
Oil marketers are waiting with bated breath to see the measures the government will deploy to lower pump prices within the next seven days.
Public service transporters, who led the nationwide strike on Monday, agreed to return to the road as talks
continue with the government over the costly fuel.
Transporters hiked fares significantly from last week in response to the spike in diesel prices and it remains to be seen whether they will lower the fares in the wake of Tuesdday’s move to suspend the strike.