Fuel Devpt Levy: Kenya’s gamble with hedging fund that has started the wrong way

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As per Cofek earlier fears, something does not really add up on the Petroleum Development Levy (PDL) paid into a Petroleum Levy Fund supposedly managed by the Principal Secretary at the National Treasury.

To begin with, Cofek has challenged the July 10, 2020 regulations announced by Mining and Petroleum Cabinet Secretary John Munyes.

In the Petition E219 of 2020, Cofek sued Mr Munyes, his National Treasury counterpart, National Assembly, Attorney General and the Energy and Petroleum Regulatory Authority (EPRA).

The preliminary objection by the National Assembly against the Cofek case was dismissed.

In the case, Cofek has argued that the Munyes order on PDL failed the legal test and threshold for lack of public participation, conformity to the Constitution of Kenya, Statutory Instruments Act, Interpretation and General Provisions Act, Public Finance Management Act and the Consumer Protection Act

Even as that as been going on, the National Assembly Committee on Delegated Legislation invited Cofek to its’ sitting of February 16, 2021 after being prompted of the court petition by officials of the State Department of Petroleum.

At the sitting chaired by Tiaty MP William Kamket, the proceedings were as interesting as they are confusing. It is clear which way majority of the MPs will vote as regards the fate of the offending regulations. That is their right. But they were reminded of the consequences at the ballot come 2022 – with some protesting that the Cofek Secretary General was intimidating them with threats.

But more startling was one member who didn’t know that effective July 15, 2020 PDL had been increased by Sh5 from the old rate of 40 cents to now settle at Sh5.40.

Another MP was even more interesting: He does not see anything wrong making the increment of Sh5 compared to 1991. That is even after he was informed that Excise Duty stands at Sh21.95, Road Maintenance Levy at Sh18, 16 per cent VAT and a raft of other taxes and levies.

That over 55 per cent of Kenya’s fuel pricing revolves around taxes and levies is a worrying. This means that Kenyans will soon be staring at possibility of Sh150 per litre of petrol if Covid-19 subsides and the economy fully recovers.

As at February 15, the barrel price of Brent crude had shot to $60.5. If Saudi Arabia cuts consumption and US holds on its’ reserves, it is very likely that crude will hit the $100 per barrel mark sooner than later.

From the ‘Business Daily’ story entitled ‘Why motorists failed to access diesel subsidy’, as carried on February 16, 2021 new revelations on the PDL have come to bare.

First that the government now acknowledges that there is a legal hitch and that is the more reason the PDL Fund is not operational. EPRA, the industry regulator, appears to suggest that although Sh5 is picked off a litre of petrol and that of diesel, only diesel consumers shall have a subsidy.

By all means, if such a regulation came through public participation process, it will be defeated ab initio and in toto given that it is not only unconstitutional by way of discrimination but unfair as you cannot rob A to gift B as it remains unsustainable.

Not sure how Business Daily knows the otherwise privileged information that Government has only collected Sh10 billion from July 15, 2020 after it hurriedly effected a 1,250 per cent increment of PDL from 40 cents to Sh5.40.

Cofek’s modest calculation is that at least Sh20 billion has since been collected as based on average consumption of fuel.

Clearly, the transparency and accountability around fuel pricing and managing proceeds of the petroleum funds is waning. Quite fast.

The PDL is modeled on subsidy-driven hedging as opposed to one of pooling up huge fuel reserves at lower prices even as it is clear the price offering is headed to the sharp North.

We think a time has come with a national conversation and or dialogue on Petroleum Fuel Pricing and Management of Petroleum Levies




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