A record-high subsidy on diesel products for the current monthly pricing cycle to July 14, 2026, will cost an estimated Sh10 billion, adding to the cash flow woes facing oil marketers amid delayed State compensation for selling fuel at below the gazetted prices.
A senior government official in the energy sector disclosed that the Sh10 billion will also include the subsidy of Sh55.68 per litre applied on kerosene.
“The June-July subsidy is Sh10 billion. We have tried to clear all the previous ones except this current one,” the official who sought anonymity due to sensitivity of the matter told Business Daily on Monday.
Diesel accounts for more than 95 percent of the bill given that the State applied a record subsidy of Sh34.07 per litre. Diesel is also the dominant fuel in Kenya, averaging between seven and eight million litres a day.
Insiders said that the latest subsidy bill will compound the working capital struggles for oil marketers, given that the State has only paid a small chunk of the Sh11.2 billion that was applied between April 15 and June 14.
Costly fuel and the upfront payment of taxes before evacuating fuel has further amplified the impact of the delayed subsidy payments, with some firms forced to close shop.
The latest subsidy helped lower diesel prices by Sh10 to Sh222.86 per litre in Nairobi while kerosene prices remained unchanged at Sh191.38 per litre. The State did not subsidise petrol prices, even though the cost of a litre dropped by Sh0.22 to Sh214.03 in the capital.
Oil marketers have repeatedly warned that delayed payments of the subsidy arrears throw the industry into financial struggles, with the firms struggling to get working capital.
The woes are most pronounced on the small local oil companies, with most forced to temporarily close or borrow more from banks to keep operations running.
“We have no arrears. For the last cycle, payments are already in process. For this cycle, we are waiting for reconciliation from the importing OMCs, the amounts due to the wholesale and retail,” the official added.
Kenya has since April 15 deployed a steep subsidy on fuel to prevent prices from rising by higher margins in what could further stoke public outrage amid escalating cost of living.
The subsidy kitty is funded by the Petroleum Development Levy (PDL) which is charged at the rate of Sh5.40 per litre of diesel and petrol and Sh0.40 for a similar quantity of kerosene.
PDL has been critical in helping keep a lid on pump prices in the wake of a surge in global prices of refined fuel due to the US-Israel war on Iran.
The war, which broke out in February this year, has seen global benchmark prices (Platts) of diesel, petrol and kerosene jump by up to 73 percent between February and last month.
Official data from Epra shows that a metric tonne of diesel went for $1,108.58 (Sh143,915.86) last month, a rise of 73 percent from $637.76 (Sh82,551.65) in April, while the price of a similar quantity of petrol jumped to $1,127.09 (Sh146,318.82) from $686.53 (Sh88,864.44) in the same period.
Platts for diesel had hit a record $1,393.50 (Sh180,541.86) for a tonne in April at the peak of the disruptions caused by the Middle East war.
But the Platts fell last month after the US and Iran signed a 60-day ceasefire. Fueling optimism that global prices will be on a sustained drop in the coming months if the ceasefire holds.
The subsidy kitty had Sh17 billion at the start of April, and its near depletion forced the government to halve the Value Added Tax (VAT) on fuel to eight percent to further lower prices.
For example, diesel and petrol prices could have jumped by Sh64.92 and Sh33.37 per litre in the monthly cycle from April 15 had the State not applied a combination of the subsidy and reduction of VAT from 16 percent to 13 percent. They, however, rose by Sh40.30 and Sh28.69 per litre of diesel and petrol, respectively.
Oil majors such as Vivo Energy and Rubis have in the past cited delayed payment of the subsidy arrears as a major concern facing operations in Kenya.
The government has in the past been forced to float a bond to clear subsidy arrears, lifting the lid on the industry’s fears if the current bill accumulates in the coming months.
In 2023, Kenya floated a three-year bond to pay oil marketers a subsidy debt that had accumulated to Sh45.8 billion.
But the industry protested the move, saying that it was arm-twisted to take up the bond payment. The size that each marketer bought was pegged on the arrears owed.
