Government Pays Oil Marketers Sh7.9 Billion in Fuel Subsidy Arrears

The government has paid oil marketers Sh7.9 billion under the fuel subsidy programme, easing cash flow pressures that had disrupted fuel supply following a surge in global oil prices.

Principal Secretary for Petroleum Kello Harsama said the payment, made two weeks ago, covers subsidy claims for the May 15 to June 14 pricing cycle. The funds were paid to fuel importers, who are expected to remit the money to oil marketing companies based on the volumes of fuel they lifted.

“We paid Sh7.9 billion for the subsidy arrears covering the May–June cycle. We expect the importers to wire the money to the respective oil marketers,” Harsama said.

He added that the government is now working to settle the outstanding subsidy claims for the June–July cycle, estimated at about Sh10 billion, once the current pricing period ends on July 14.

The payment comes after months of financial strain in the downstream petroleum sector, where delayed subsidy reimbursements, combined with rising global fuel prices, affected the ability of marketers to import and distribute adequate fuel supplies.

The situation was worsened by disruptions in global energy markets following the conflict involving the United States, Israel and Iran, which pushed up the cost of refined petroleum products and contributed to fuel shortages that were most severe in May.

Oil marketers had warned that delayed subsidy payments were straining their operations because they were required to purchase more expensive fuel while also paying taxes upfront before accessing products from the Kenya Pipeline Company (KPC) distribution system.

The shortages particularly affected dealers affiliated with major oil marketers, including Vivo Energy Kenya and Rubis Energy Kenya, as well as several independent fuel retailers, triggering panic buying in some parts of the country.

The fuel subsidy programme is financed through the Petroleum Development Levy, under which motorists contribute Sh5.40 per litre of petrol and diesel and Sh0.40 per litre of kerosene.

However, concerns have been raised over the sustainability of the fund after part of its resources was reportedly diverted to activities outside those permitted under the governing regulations, while increased subsidy payments have further strained the kitty.

The subsidy programme has played a key role in cushioning consumers from the full impact of rising international fuel prices by limiting increases in local pump prices despite heightened volatility in global energy markets.