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Kenya to pay petrol subsidy arrears in a bid to curb fuel shortages

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Kenya’s government will pay subsidy arrears to petrol retailers this week as it seeks to allay fears of potential fuel shortages and forestall a crisis, a senior government official said on Monday.

Like other frontier economies, Kenya is reeling from a surge in crude oil prices since last year, which have forced it to start subsiding retail prices.

The government of East Africa’s biggest economy rolled out a fuel subsidy in April last year to cushion consumers from the surge in the price of oil in international markets.

It has so far spent $313 million subsidising fuel, which has helped stabilise prices at the pump and keep inflation within the government’s preferred band.

But the latest jump is causing cash flow problems at some smaller fuel retailers, principal secretary in the petroleum and mining ministry, Andrew Kamau told Reuters, leading to supply shortages, and the hardships have been compounded by delays in the payment of subsidies to the companies by the government.

The government owes the companies 13 billion shillings, Kamau said, which will be settled this week.

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The respite cannot come soon enough for the frustrated motorists who have been queuing in long lines at petrol stations for days due to the biting shortages, prompting the government to say it has adequate fuel stocks.

“This is an artificial shortage,” Kamau said.

One consumer said she had to visit several stations around the capital Nairobi on Monday morning before finding one with fuel. She said continued shortages would force her company to take its vehicle fleet off the road.

“We will start parking the cars at home,” said Evelyn Njenga, whose family operates a fleet of commercial pick-up trucks, as she waited in a long line of vehicles.

Apart from straining the government’s finances, higher oil prices also drove up inflation by a half percentage point last month, and it has also frustrated policymakers.

“Prices at $100 a barrel are completely beyond the realm of understanding,” Patrick Njoroge, Kenya’s central bank governor, told a news conference last week, calling on rich nations to rein in prices.

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