(Nairobi) – Diesel consumers in Kenya have been denied a price reduction as the government uses cross-subsidization to prevent price hikes for petrol and kerosene.
In a move that has frustrated diesel consumers, the Kenyan government has opted to use diesel as a cross-subsidy to prevent price increases for petrol and kerosene, leaving diesel prices unchanged despite a potential price drop. The decision to apply this subsidy comes as global shipment costs for diesel decreased, but the government decided to use the savings to maintain the cost of petrol and kerosene, which saw price hikes due to rising shipment costs.
The Energy and Petroleum Regulatory Authority (EPRA) announced that the maximum allowed prices for petrol, diesel, and kerosene would remain unchanged. Despite a drop in diesel shipment costs by 4.34% to $608.61 (Sh78,808) per cubic meter from $636.22 (Sh82,460) in September, the price for diesel at the pump remains at Sh168.06 per litre. This missed price reduction for diesel consumers is being used to prevent price increases of Sh0.46 per litre for petrol and Sh3.29 per litre for kerosene.
The practice of cross-subsidization, where one product’s price is adjusted to offset price changes in another, has faced legal challenges in the past. In 2023, a petition filed in Mombasa sought to challenge the legality of cross-subsidy, arguing that it unfairly overcharges one set of consumers to benefit another. However, the court dismissed the case, ruling that the practice was not unlawful.
The latest fuel pricing review also reveals that while the cost of diesel has dropped, the landed costs of petrol rose by 0.54%, and kerosene by 3.97%, contributing to the higher costs for these products. The government’s decision to use diesel prices to subsidize petrol and kerosene comes as a response to these increases, particularly given that a large portion of the Kenyan economy is reliant on diesel, with the transport and agricultural sectors being major consumers.
Despite the ongoing challenges, the government’s move is seen as an attempt to shield consumers from further fuel price increases, but it also means that the hoped-for reduction in diesel prices, which could have provided some relief for the economy, will not materialize.
In Nairobi, petrol remains at Sh180.66 per litre, while kerosene is priced at Sh151.39 per litre. Last month, the fuel prices had seen a significant drop, with petrol falling by Sh8.18 per litre, and diesel dropping by Sh3.54 per litre, even without the cross-subsidy in place. However, the cross-subsidization now in place has dashed hopes for any further price reductions in the near future.
| Fuel Type | Current Price (Nairobi) | Previous Price | Price Change |
|---|---|---|---|
| Petrol | Sh180.66 per litre | Sh180.66 per litre | No Change |
| Diesel | Sh168.06 per litre | Sh168.06 per litre | No Change |
| Kerosene | Sh151.39 per litre | Sh151.39 per litre | No Change |
While the decision may ease pressures on consumers of petrol and kerosene, it also means that the hoped-for easing of inflation, especially for sectors heavily reliant on diesel, will not happen. The Kenyan economy, which is significantly diesel-driven, would have benefitted from a drop in diesel prices, especially given the ongoing economic struggles, including high unemployment and rising taxation.