What Is the Petroleum Development Levy?

The Petroleum Development Levy was established under the Petroleum Development Fund Act of 1991. It is a mandatory charge collected on petroleum products consumed in Kenya and paid by consumers through the retail pump price.

The current levy rates are:

Product	Levy Rate
Super Petrol	KSh 5.40 per litre
Diesel	KSh 5.40 per litre
Kerosene	KSh 0.40 per litre
Jet Fuel	KSh 5.40 per litre
LPG (Cooking Gas)	KSh 0.40 per kilogram

The levy is collected when petroleum products are imported into the country or released into the local market. Oil marketing companies collect and remit the levy to the government as part of the fuel supply chain.

CN Explained: What Is a Levy?

A levy is a specific charge imposed by the government to fund a particular purpose.

Unlike general taxes, which go into the government’s overall budget, levies are typically intended to finance a specific programme, project, or sector.

In the case of the Petroleum Development Levy, the money is meant to support fuel price stabilisation and petroleum sector development.

Why Was the Petroleum Development Levy Created?

The original goal of the levy was relatively straightforward. Fuel prices are heavily influenced by global crude oil prices and currency fluctuations. When international oil prices rise sharply, consumers often experience significant increases in pump prices. The Petroleum Development Levy was created to build a financial reserve that could help cushion motorists from severe fuel price shocks.

In simple terms, the government collects money during normal periods and can use it to reduce the impact of unusually high fuel costs when global markets become volatile.

Where Does the Money Go?

Revenue collected through the levy is deposited into the Petroleum Development Fund.

According to the law, the fund may be used for:

Fuel price stabilisation initiatives
Development of common petroleum infrastructure
Petroleum testing facilities
Strategic petroleum projects
Other activities related to petroleum sector development

The fund is intended to improve the efficiency, reliability, and long-term sustainability of Kenya’s petroleum industry.

How Much Does the Levy Cost Motorists?

Because the levy is charged per litre, the amount paid depends on how much fuel a motorist consumes.

For example:

50-Litre Fuel Tank

50 litres × KSh 5.40 = KSh 270

A driver filling a 50-litre petrol tank contributes KSh 270 to the Petroleum Development Fund in a single visit to the fuel station.

Monthly Example

A motorist consuming 200 litres of fuel per month contributes approximately:

200 litres × KSh 5.40 = KSh 1,080 per month

Over a year, that amounts to:

KSh 12,960

When multiplied across millions of motorists and commercial vehicle operators nationwide, the levy generates billions of shillings annually.

More than half of what you pay (approximately 55-60%) goes to taxes and levies, with the Petroleum Development Levy accounting for about 3% of your total fuel cost.

Why Has the Petroleum Development Levy Been Controversial?

Although the concept behind the levy is widely accepted, its management has faced criticism over the years. Auditor-General reports, parliamentary committees, and public interest groups have repeatedly questioned whether the fund has always been used for its intended purposes.

Several concerns have emerged.

Lack of Clear Spending Guidelines: The original legislation provided broad descriptions of how the money could be used. Critics argued that terms such as “petroleum industry development” were too vague and left room for differing interpretations.
Transparency Concerns: For many years, motorists had limited visibility into how funds were allocated and spent. This raised concerns about accountability, given the large amounts collected annually.
Questions About Fuel Price Stabilisation: Many consumers have questioned why pump prices continued to rise significantly during periods of high global oil prices despite the existence of a stabilisation fund. This has increased public scrutiny of how the fund operates.

What Reforms Have Been Proposed?

Recognising these concerns, lawmakers have proposed several measures to strengthen accountability.

These reforms include:

Clearer Use of Funds: Proposals seek to explicitly define fuel price stabilisation as a core purpose of the fund.
Improved Oversight: Suggested reforms include the establishment of a Petroleum Development Fund Advisory Board to oversee fund utilisation.
Stronger Accountability: Additional reporting and approval requirements could improve transparency and ensure funds are used for authorised purposes.

These changes aim to give motorists greater confidence that the levy is serving its intended purpose.

How Much of Your Fuel Price Is Actually Tax?

Many motorists are surprised to learn that the actual fuel itself accounts for less than half of the final pump price.

A significant portion consists of taxes, levies, regulatory charges, and distribution costs.

CN Explained: Why Fuel Prices Are Higher Than the Cost of Fuel

When fuel arrives in Kenya, its landed cost only represents the cost of purchasing and importing the product. Before reaching motorists, several additional costs are added, including:

Excise Duty

Road Maintenance Levy

Petroleum Development Levy

Petroleum Regulatory Levy

Railway Development Levy

Value Added Tax (VAT)

Transportation costs

Storage costs

Wholesale and retail margins

This explains why the final pump price can be more than double the imported fuel cost.

Car Refuelling at the pump | Photo by Engin Akyurt from Pexels

Where Does Every Shilling of Your Fuel Price Go?

Here’s a detailed breakdown of what you’re actually paying for when you buy petrol in Nairobi (based on October 2025 prices):

The Base Cost

Landed Cost (imported fuel): KSh 80.48 per litre (Diesel: KSh 80.64, Kerosene: KSh 81.24)
- This is the actual cost of bringing fuel into Kenya, including purchase price, shipping, insurance, and port charges

Taxes and Levies (KSh 56.96 per litre)

Excise Duty: KSh 21.95 per litre (Diesel: KSh 11.37, Kerosene: KSh 11.37)
- General government revenue tax that helps fund national budget programs and services
Road Maintenance Levy: KSh 25.00 per litre (Petrol & Diesel; not charged on kerosene)
- Established under the Road Maintenance Levy Fund Act (1993), specifically for maintaining and improving Kenya’s road network
Petroleum Development Levy: KSh 5.40 per litre (Petrol & Diesel, Kerosene: KSh 0.40)
- For developing petroleum infrastructure and stabilising fuel prices during global oil price spikes (as discussed above)
Petroleum Regulatory Levy: KSh 0.75 per litre
- Funds EPRA’s operations in regulating the petroleum sector, including price monitoring, licensing, and enforcement
Railway Development Levy (RDL): KSh 1.53 per litre (Diesel: KSh 1.55, Kerosene: KSh 1.57)
- Used to fund the construction and operations of the country’s standard gauge railway network, including its construction, maintenance, and related infrastructure projects
Anti-Adulteration Levy: KSh 18.00 on customs value (for kerosene only)
- Helps fund efforts to prevent mixing of kerosene with other fuels, protecting consumers and ensuring proper tax collection
Merchant Shipping Levy & Import Declaration Fee: KSh 1.95 per litre (Diesel: KSh 1.96, Kerosene: KSh 1.99)
- Supports maritime services and customs operations for imported goods
Value Added Tax (VAT): KSh 25.45 per litre (Diesel: KSh 23.65, Kerosene: KSh 21.35)
- Value Added Tax collected on the cumulative cost, including other taxes

Distribution Costs

Oil Marketer & Dealer Margins: KSh 17.39 per litre (Diesel: KSh 17.31, Kerosene: KSh 17.24)
- Covers operating costs for oil marketing companies (KSh 6.14) and retail fuel stations (KSh 11.25), including staff salaries, rent, utilities, and profit margins
Transport & Distribution: KSh 4.69 per litre (Diesel: KSh 4.38, Kerosene: KSh 4.34)
- Costs of moving fuel from Mombasa port to depots (via pipeline or trucks) and then to retail stations, including storage at oil storage facilities

Total Pump Price: KSh 184.52 per litre (Diesel: KSh 171.47, Kerosene: KSh 154.78)

The Reality: More than half of what you pay (approximately 55-60%) goes to taxes and levies, with the Petroleum Development Levy accounting for about 3% of your total fuel cost. The actual imported fuel makes up only about 45% of the pump price.

What Does the Petroleum Development Levy Mean for Drivers?

For motorists, the Petroleum Development Levy represents a trade-off.

Potential Benefits

If managed effectively, the fund can:

Reduce the impact of global oil price shocks
Improve fuel supply stability
Support petroleum infrastructure development
Enhance long-term energy security

Ongoing Challenges

To maintain public confidence, authorities must ensure:

Transparent reporting
Effective oversight
Responsible use of funds
Clear communication with consumers

Motorists contribute to the fund every day and therefore have a legitimate interest in how it is managed.

CN Insight: Why Understanding Fuel Levies Matters

Fuel is one of the largest operating costs for many Kenyan households and businesses.

Understanding how fuel prices are structured helps motorists:

Budget more effectively

Understand price changes

Evaluate government policy

Participate in informed public discussions about energy and taxation

The more consumers understand fuel pricing, the easier it becomes to hold decision-makers accountable.

Frequently Asked Questions

What is the Petroleum Development Levy?

The Petroleum Development Levy is a government charge imposed on petroleum products to fund fuel price stabilisation initiatives and petroleum sector development.

How much is the levy on petrol?

Motorists currently pay KSh 5.40 per litre of petrol and diesel.

Motorists currently pay KSh 5.40 per litre of petrol and diesel.

Not directly. The fund is intended to help cushion consumers during periods of unusually high global oil prices.

Who manages the Petroleum Development Fund?

The fund is administered under government regulations, with oversight from relevant energy and finance authorities.

Why is the levy controversial?

Concerns have been raised about transparency, accountability, and whether funds have always been used for their intended purpose.

CN Key Takeaways

✔ The Petroleum Development Levy adds KSh 5.40 to every litre of petrol and diesel sold in Kenya.

✔ The levy was created to help stabilise fuel prices and support petroleum sector development.

✔ A driver filling a 50-litre tank contributes approximately KSh 270 in Petroleum Development Levy.

✔ The levy generates billions of shillings annually through fuel consumption.

✔ Transparency and accountability concerns have led to calls for stronger oversight.

✔ More than half of Kenya’s fuel pump price consists of taxes, levies, and associated charges.

✔ Understanding fuel levies helps motorists better understand why fuel prices change.

Conclusion

The Petroleum Development Levy is one of the most important yet least understood components of Kenya’s fuel pricing structure. While its original purpose was to protect consumers from extreme fuel price fluctuations and support petroleum sector development, questions about governance and transparency have kept the levy in the public spotlight.

For motorists, understanding the levy provides valuable insight into where fuel costs come from and why fuel prices remain a major economic issue in Kenya. The next time you fill up your vehicle, remember that part of your fuel bill is contributing to a fund designed to support the country’s energy future.