State spends Sh170b on fuel stabilisation

Energy Cabinet Secretary Davis Chirchir told MPs that the government spent a total of Sh169.899 billion between April 2021 and June 2023 for fuel stabilisation.

Out of this, Sh124 billion has been paid to Oil Marketing Companies (OMC), leaving an outstanding balance of Sh45.8 billion. Chirchir, appearing before the Energy Committee chaired by Mwala MP Vincent Musyoka, provided details on the payments made to OMCs.

He said: “Over the period April 2021 to June 2023, the total amount accrued on account of Petroleum pump price subsidy was Sh 169, 899, 174,015.11 out of which KES 124.078,526,700.32 has been paid by the exchequer leaving an outstanding balance of KES 45,820,647, 314.79.”

Among others, Vivo Energy received the highest amount of Sh49 billion, followed by Total Energies with Sh30.2 billion, and Rubis Energy with Sh15.4 billion.

Managing transactions

The subsidy amounts for each cargo paid by the ministry to the importer (seller) on behalf of the other participating OMCs, with the importer serving as the custodian of records. Chirchir stated that this mechanism was favoured for its ease in accounting and managing transactions.

“This decision was reached during an industry meeting that was held on 15th April 2021. The mechanism was favoured as it made accounting and management of the voluminous transaction easier on the part of the government,” Chirchir said.

Regarding the outstanding Sh45.8 billion owed to OMCs, Chirchir informed MPs that during a meeting with OMCs and the National Treasury in May, it was agreed that the outstanding amount would be settled through a bond instrument. The first tranche of the bond, equivalent to Sh17.99 billion, was agreed to be paid in the financial year 2022/2023. “The administration of the Treasury Bonds was done by the Central Bank of Kenya,” Chirchir noted.

Chirchir also provided information on monies spent in the 2023/2024 financial year for stabilization, indicating that Sh9.98 billion was spent from mid-July to mid-December.

The breakdown showed spending of Sh 168.5 million between July 15 and August 14, Sh1.8 billion between August 15 and September 15, Sh1.75 billion between October 15 and November 14, and Sh6.3 billion between November 15 and December 14. National Treasury Cabinet Secretary Njuguna Ndung’u had previously announced that the subsidy programme was halted due to increasing debts owed to OMCs.

The outstanding amount of Sh43 billion was securitized through Treasury bills and bonds maturing in three years. The subsidy was replaced by the Petroleum Development Levy (PDL), which is used to subsidise fuel prices.

Ndung’u stated, “Once we were out of the subsidy, PDL kicked in, and it is the one that we have been using to subsidise fuel prices.”