Kenya Faces Soaring Fuel Prices as Subsidy Fund Runs Dry
Quote from Lawyer on July 23, 2025, 7:53 amKenya's fuel subsidy fund, designed to stabilize retail fuel prices, has been completely depleted, leaving consumers vulnerable to sharp increases in pump prices driven by volatile global oil markets. The Energy and Petroleum Regulatory Authority (EPRA) announced that the cost of super petrol, diesel, and kerosene has surged by an average of Sh9 per litre, marking the largest price hike in over two years. In Nairobi, super petrol now retails at Sh186.31 per litre, diesel at Sh171.58, and kerosene at Sh156.58, effective from July 15 to August 14, 2025.
The depletion of the Petroleum Development Levy (PDL) fund, which collects Sh5.40 per litre of petrol and diesel and Sh0.40 per litre of kerosene, has forced the government to suspend its fuel price stabilization mechanism for the second consecutive month. Energy Cabinet Secretary Opiyo Wandayi informed Parliament that the ministry requires an additional Sh2.5 billion to cushion consumers against these price spikes, a sum currently unavailable. This development follows a year where the state raised Sh26.37 billion through the PDL but spent only Sh13.68 billion on subsidies, with the remainder diverted to other sectors, including a controversial Sh18 billion payment in 2021 to a Chinese firm operating the Standard Gauge Railway.
The surge in pump prices is primarily attributed to rising global oil prices, exacerbated by geopolitical tensions such as the Israel-Iran conflict. The landed cost of imported super petrol increased by 6.45 percent to $628.30 (Sh81,440.24) per cubic metre in June, while diesel rose by 6.27 percent to $616.59 (Sh79,922.39) per cubic metre. These increases, combined with a stagnant Kenyan shilling against the US dollar, have driven up local fuel costs. The government's fixed-price fuel import deal with Gulf oil majors Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company, in place since 2023, has further limited Kenya's ability to benefit from occasional dips in global crude oil prices.
Fuel prices significantly impact Kenya's economy, as diesel powers transport, agriculture, and power generation, while kerosene is widely used for household cooking and lighting. The recent price hike is expected to exacerbate inflationary pressures, with inflation already at 3.8 percent in June, unchanged from May. Analysts warn that the rising cost of fuel could further strain households and businesses, already grappling with a high cost of living, potentially sparking public unrest. The government has faced criticism for its handling of the PDL, with past audits, including one by Auditor-General Nancy Gathungu, flagging illegal diversions of funds meant for fuel stabilization.
Historically, Kenya's fuel subsidy program has been a critical tool to shield consumers from global price volatility. In the 2024-2025 fiscal year, the state spent Sh58 billion from the Railway Development Fund to subsidize pump prices, a move deemed unlawful by oversight bodies. The International Monetary Fund (IMF) has also questioned the sustainability of Kenya's subsidy program, urging a review of the fuel pricing mechanism to align with budgeted resources. A task force established in May 2023 to evaluate the system has yet to release its findings, missing the IMF's January 2025 deadline.
Consumers face additional burdens from multiple levies and taxes embedded in fuel prices, including the Roads Maintenance Levy, which was raised from Sh18 to Sh25 per litre in July 2024. These charges, combined with higher wholesale and retail margins for oil marketers, recently increased by up to 23 percent, further inflate pump prices. EPRA has defended these adjustments, citing a cost-of-service study to ensure fair compensation for oil marketing companies and transporters.
The Kenya Kwanza administration, which previously vowed to prioritize subsidies for productive sectors like agriculture over consumption-based subsidies, now faces a delicate balancing act. Treasury Cabinet Secretary John Mbadi declined to confirm the PDL's depletion but noted that EPRA opted against applying subsidies in the latest pricing cycle. This decision has drawn scrutiny, especially given President William Ruto's earlier criticism of fuel subsidies as unsustainable. Social media posts reflect growing public frustration, with some questioning the government's commitment to easing economic pressures.
As Kenya navigates this fuel crisis, calls for transparency and sustainable solutions are mounting. Proposals include increasing the National Oil Corporation's fuel reserves to stabilize supply and revising the fuel import deal to allow flexibility in response to global price drops. Without intervention, analysts predict continued economic strain, with ripple effects on transport, manufacturing, and household budgets. The government has yet to announce plans to replenish the PDL or address the broader implications of the subsidy fund's depletion.
Kenya's fuel subsidy fund, designed to stabilize retail fuel prices, has been completely depleted, leaving consumers vulnerable to sharp increases in pump prices driven by volatile global oil markets. The Energy and Petroleum Regulatory Authority (EPRA) announced that the cost of super petrol, diesel, and kerosene has surged by an average of Sh9 per litre, marking the largest price hike in over two years. In Nairobi, super petrol now retails at Sh186.31 per litre, diesel at Sh171.58, and kerosene at Sh156.58, effective from July 15 to August 14, 2025.
The depletion of the Petroleum Development Levy (PDL) fund, which collects Sh5.40 per litre of petrol and diesel and Sh0.40 per litre of kerosene, has forced the government to suspend its fuel price stabilization mechanism for the second consecutive month. Energy Cabinet Secretary Opiyo Wandayi informed Parliament that the ministry requires an additional Sh2.5 billion to cushion consumers against these price spikes, a sum currently unavailable. This development follows a year where the state raised Sh26.37 billion through the PDL but spent only Sh13.68 billion on subsidies, with the remainder diverted to other sectors, including a controversial Sh18 billion payment in 2021 to a Chinese firm operating the Standard Gauge Railway.
The surge in pump prices is primarily attributed to rising global oil prices, exacerbated by geopolitical tensions such as the Israel-Iran conflict. The landed cost of imported super petrol increased by 6.45 percent to $628.30 (Sh81,440.24) per cubic metre in June, while diesel rose by 6.27 percent to $616.59 (Sh79,922.39) per cubic metre. These increases, combined with a stagnant Kenyan shilling against the US dollar, have driven up local fuel costs. The government's fixed-price fuel import deal with Gulf oil majors Saudi Aramco, Abu Dhabi National Oil Corporation, and Emirates National Oil Company, in place since 2023, has further limited Kenya's ability to benefit from occasional dips in global crude oil prices.
Fuel prices significantly impact Kenya's economy, as diesel powers transport, agriculture, and power generation, while kerosene is widely used for household cooking and lighting. The recent price hike is expected to exacerbate inflationary pressures, with inflation already at 3.8 percent in June, unchanged from May. Analysts warn that the rising cost of fuel could further strain households and businesses, already grappling with a high cost of living, potentially sparking public unrest. The government has faced criticism for its handling of the PDL, with past audits, including one by Auditor-General Nancy Gathungu, flagging illegal diversions of funds meant for fuel stabilization.
Historically, Kenya's fuel subsidy program has been a critical tool to shield consumers from global price volatility. In the 2024-2025 fiscal year, the state spent Sh58 billion from the Railway Development Fund to subsidize pump prices, a move deemed unlawful by oversight bodies. The International Monetary Fund (IMF) has also questioned the sustainability of Kenya's subsidy program, urging a review of the fuel pricing mechanism to align with budgeted resources. A task force established in May 2023 to evaluate the system has yet to release its findings, missing the IMF's January 2025 deadline.
Consumers face additional burdens from multiple levies and taxes embedded in fuel prices, including the Roads Maintenance Levy, which was raised from Sh18 to Sh25 per litre in July 2024. These charges, combined with higher wholesale and retail margins for oil marketers, recently increased by up to 23 percent, further inflate pump prices. EPRA has defended these adjustments, citing a cost-of-service study to ensure fair compensation for oil marketing companies and transporters.
The Kenya Kwanza administration, which previously vowed to prioritize subsidies for productive sectors like agriculture over consumption-based subsidies, now faces a delicate balancing act. Treasury Cabinet Secretary John Mbadi declined to confirm the PDL's depletion but noted that EPRA opted against applying subsidies in the latest pricing cycle. This decision has drawn scrutiny, especially given President William Ruto's earlier criticism of fuel subsidies as unsustainable. Social media posts reflect growing public frustration, with some questioning the government's commitment to easing economic pressures.
As Kenya navigates this fuel crisis, calls for transparency and sustainable solutions are mounting. Proposals include increasing the National Oil Corporation's fuel reserves to stabilize supply and revising the fuel import deal to allow flexibility in response to global price drops. Without intervention, analysts predict continued economic strain, with ripple effects on transport, manufacturing, and household budgets. The government has yet to announce plans to replenish the PDL or address the broader implications of the subsidy fund's depletion.