Manufacturers blame fuel crisis on subsidy scheme

Industry

Manufacturers blame fuel crisis on subsidy scheme


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Kenya Association of Manufacturers (KAM) chairman Mucai Kunyiha. FILE PHOTO | NMG

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Summary

  • Industry lobby, Kenya Association of Manufacturers (KAM), said the State should discontinue the stabilization of pump prices and allow the global market forces to apply locally.
  • KAM’s push for the removal of the subsidy comes days after Energy and Petroleum Cabinet Secretary Monicah Juma said Kenya would continue subsidizing prices until the global costs of crude ease.
  • The government has been struggling to fully compensate marketers for keeping prices low despite the global rally in crude prices.

Manufacturers have called on the government to abandon the fuel subsidy scheme in a bid to enable normal supplies of the precious commodity and avoid economic disruptions.

Industry lobby, Kenya Association of Manufacturers (KAM), said the State should discontinue the stabilization of pump prices and allow the global market forces to apply locally.

“It is now painfully clear that the fuel supply system, and in particular the subsidy program, has broken down, perhaps irretrievably so.

“We are urging the government to abandon the subsidy system to enable stable supplies in the market,” KAM chairperson Mucai Kunyiha said.

KAM’s push for the removal of the subsidy comes days after Energy and Petroleum Cabinet Secretary Monicah Juma said Kenya would continue subsidizing prices until the global costs of crude ease.

The government has been struggling to fully compensate marketers for keeping prices low despite the global rally in crude prices.

Oil marketers estimate the arrears at more than Sh20 billion but the government puts the figure at Sh13 billion.

Dr Juma last Thursday said the State had paid oil marketers a cumulative Sh49.164 billion under the pump prices stabilization scheme.

Businesses and the transport sector have for the past three weeks been disrupted due to a lack of enough fuel supplies after oil marketers cut supplies for the local market.

Small oil firms are also grappling with cash flow woes due to delays by the State in remitting the subsidy cash.

Kenya has since April last year been subsidizing pump prices to cushion consumers from high costs of diesel and petrol in the wake of the global rally in crude prices.

The stabilization program has been linked to the recent fuel shortage after oil marketers increased their fuel supplies for the export market leading to a stockout of the commodity that has persisted for three weeks.

Besides businesses, the shortage has disrupted the planting season due to a lack of fertilizers and enough diesel to power the tractors, underlining the extent of the crisis.

The State has since issued show-cause letters to oil marketers for their role in the artificial shortage of fuel, setting the stage for fines and other punitive actions for what it termed as economic sabotage.

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