The Energy and Petroleum Regulatory Authority (EPRA) of Kenya has announced a significant hike in fuel prices in its most recent review, with costs surpassing KES 200 per litre for the first time. The new prices, which took effect on January 15 and will remain valid until February 14, 2025, are poised to have widespread ramifications on households, businesses, and the overall economy.

Revised Fuel Prices

The newly announced prices in Nairobi are as follows:

• Super Petrol: KES 211.64 per litre (an increase of KES 16.96)
• Diesel: KES 201.00 per litre (an increase of KES 21.32)
• Kerosene: KES 202.13 per litre (an increase of KES 33.13)

This marks one of the steepest price increases in recent years, adding to the growing financial burden on Kenyans already grappling with a high cost of living.

Reasons Behind the Hike

EPRA attributes the sharp rise in fuel prices to two primary factors:

1. Global Crude Oil Prices
   The international oil market has experienced an uptick in prices due to supply chain disruptions and increasing demand in major markets such as the United States and China. Recent geopolitical tensions and production cuts by key oil-producing countries, including members of OPEC, have further exacerbated the situation.
2. Exchange Rate Volatility
   The Kenyan shilling has been steadily weakening against major global currencies, particularly the US dollar. This devaluation has inflated the cost of importing crude oil, directly contributing to the rise in local fuel prices.

Economic Implications

The ripple effects of the fuel price hike are expected to be far-reaching, impacting various sectors and exacerbating economic challenges for the average Kenyan.

Transportation Sector

The rise in fuel prices is anticipated to drive up the cost of public and private transportation. Matatu (public transport vans) operators have already indicated that they will pass on the additional costs to commuters, potentially increasing fares by up to 15%. For private vehicle owners, the financial strain will also intensify, leading to a possible decline in car usage.

Manufacturing and Logistics

Higher diesel prices will significantly increase the cost of transporting goods across the country, affecting supply chains and raising production costs. Manufacturers may pass these costs onto consumers, resulting in higher prices for essential goods, including food and household items.

Household Budgets

The sharp increase in kerosene prices is particularly concerning for low-income households that rely on it for cooking and lighting. With kerosene now costing KES 202.13 per litre, many families may be forced to seek alternative, potentially less efficient, energy sources, further straining their budgets.

Inflation and Economic Growth

Economists warn that the fuel price hike could trigger a rise in inflation rates, currently hovering around 9.2%. This will likely slow economic growth, with reduced consumer spending and increased operational costs across sectors.

Public Reaction

Kenyans have expressed frustration and anger over the price hikes, taking to social media to voice their concerns. Many are criticizing the government for failing to implement measures to cushion citizens from the financial impact.

Consumer groups and civil society organizations have also called for immediate action, urging the government to reinstate fuel subsidies or introduce tax relief measures.

“Fuel prices are a key driver of the cost of living. The government must act swiftly to protect vulnerable households,” said Stephen Mutua, a representative of the Consumer Federation of Kenya.

Government Response

So far, the government has not announced any immediate interventions to mitigate the effects of the price increase. Analysts, however, believe that strategic measures such as reintroducing subsidies or reducing taxes on petroleum products could help stabilize the situation.

Energy and Petroleum Cabinet Secretary Davis Chirchir recently acknowledged the challenges but emphasized the need for long-term solutions to reduce dependency on imported oil.

Possible Mitigation Strategies

1. Investment in Renewable Energy
   Experts advocate for accelerated investment in renewable energy sources such as solar, wind, and geothermal. Kenya, already a global leader in geothermal energy production, can further expand its renewable energy capacity to reduce reliance on imported oil.
2. Enhancing Local Refining Capacity
   Rehabilitating and modernizing local refineries, such as the Kenya Petroleum Refineries Limited in Mombasa, could reduce the need for imported refined petroleum products, potentially lowering costs.
3. Strengthening Public Transport
   Improving and expanding the public transport system could reduce reliance on private vehicles, decreasing overall fuel consumption. Initiatives such as electric buses and rail systems could also help lower long-term costs.
4. Tax Reforms
   Reducing taxes on petroleum products, which currently account for a significant portion of the pump price, could provide immediate relief to consumers.

International Comparisons

Kenya’s fuel prices are now among the highest in East Africa. In neighboring Uganda and Tanzania, where similar price hikes have occurred, governments have implemented various subsidies and tax reductions to ease the burden on citizens.

Looking Ahead

As the impact of the latest EPRA review unfolds, Kenyans are bracing for tougher economic conditions. The government faces mounting pressure to intervene and implement measures that can provide relief to struggling households and businesses.

In the long term, reducing dependence on imported oil and embracing sustainable energy solutions will be crucial in safeguarding the country’s economic stability. For now, however, the immediate focus must be on mitigating the short-term effects of rising fuel prices to avoid further economic strain.

Stay tuned for updates on how the government and other stakeholders address this pressing issue in the coming weeks.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

16^th January, 2024