Explained: Why lower fuel import costs are not translating to cheaper fuel prices

An analysis of fuel prices over the last few months reveals how the government has, at times, withheld relief at the pump and instead redirected the money to subsidise other petroleum products such as jet fuel.

And while consumers grapple with higher fuel prices, the margins earned by oil marketing companies have been going up. So, beyond international oil prices, what else is keeping fuel prices high at the pump?

For months now, rising fuel prices have been blamed on developments in the international markets, specifically the escalation of tensions in the Middle East.

“In February, the price of super petrol in the international market was 686 dollars a tonne, but as we spoke last month, it was at 1,300 dollars a tonne. That is an increase of over 90 per cent, and that is what has directly translated to the pump," Eng. Kinyua, Director General, Energy and Petroleum Regulatory Authority, stated. 

A closer look at the figures published by EPRA reveals that even when the cost of importing fuel falls, the savings do not always reach consumers.

In August, for instance, the landed cost of diesel fell by more than Ksh.17 per litre. Instead of passing that drop on to consumers at the pump, the government added Ksh.19 per litre to diesel. This means that diesel should have retailed at Ksh.198 per litre that month, but the pump price was Ksh.217.

The government has maintained that it was important to do this so that the additional amount could be used to lower the price of petrol, whose landed cost had risen. A relief of Ksh.8 per litre was applied to petrol during that period.

“You know, it is like you getting into an oven and suddenly you are put into a fridge. Of course, your systems cannot be able to withstand that change in temperature. It is the same way in an economy. You don’t want to do a big spike, a small drop, a big spike, so you try to have stability in the price," Eng Kinyua stated. 

"So you either do it through the stabilisation money you have collected or, where you find some products are dropping and others are increasing, you find a balance."

This cross-subsidisation mechanism is not anchored in law, but EPRA describes it as a necessary regulatory practice benchmarked across different jurisdictions. It was also applied in July and September.

What is anchored in law, however, is the stabilisation fund. Under the Petroleum Development Levy, the government collects Ksh.5.40 for every litre of petrol and diesel, Ksh.0.40 from every litre of kerosene, and another Ksh.0.40 for every kilogram of gas.

“The reason for that kitty was that when petroleum prices went beyond a certain threshold, a certain threshold as set by ourselves, then there was need to stabilise them," he added. 

The fund collects a total of about Ksh.2.4 billion every month, but the government says this can sometimes be insufficient to stabilise petroleum prices during periods of major price fluctuations.

“If you do not have other mechanisms of beefing up what you do in terms of maintaining a stable price within the economy, then you may end up spending, overspending in terms of the stabilisation kitty. You may be in the red, and what that means is that you may now start a subsidy programme, which we try to avoid as much as possible.”

At the same time, oil marketing companies have also been earning more from supplying petroleum products. Their margins have risen by Ksh.2 per litre, from Ksh.17 to Ksh.19, since August.

Engineer Kinyua says the upward adjustment is intended to reflect the costs incurred by the companies in providing the service. He added that the margins will remain unchanged for the next five years, in line with the cost-of-service study.

“It was a phased increase which started in March 2025. The last phase was increased in August.”