What is the Petroleum Development Levy? Breaking Down Your Fuel Price

The Basics: What is the Petroleum Development Levy?

The Petroleum Development Levy was established under the Petroleum Development Fund Act of 1991. Think of it as a mandatory fee collected on every litre of petroleum fuel consumed in Kenya. The current rates, set by the Petroleum Development Levy Order of 2020, are:

• Super Petrol (Motor Spirit): KSh 5.40 per litre
• Diesel: KSh 5.40 per litre
• Kerosene: KSh 0.40 per litre
• Jet Fuel & Aviation Spirit: KSh 5.40 per litre
• LPG (Cooking Gas): KSh 0.40 per kilogram

These amounts are collected every time fuel is imported into Kenya or delivered from a refinery. Oil marketing companies are required to register as “remitters” and pay this levy immediately.

Where Does the Money Go?

The levy feeds into something called the Petroleum Development Fund, a special government account managed under strict rules. According to the law, money from this fund should be used for:

1. Price stabilisation – Cushioning consumers when international oil prices spike dramatically
2. Development of common petroleum facilities – Building and maintaining infrastructure for distributing and testing oil products
3. Matters relating to the oil industry development – Supporting the growth and improvement of Kenya’s petroleum sector

The original idea behind the levy was simple: collect money during normal times so the government can subsidise fuel prices when global oil costs shoot up, protecting Kenyans from extreme price shocks.

How Much Money Are We Talking About?

To put this in perspective, if you fill a 50-litre tank with petrol, you’re paying KSh 270 just in Petroleum Development Levy alone. That’s before Excise Duty (KSh 21.95 per litre), Road Maintenance Levy (KSh 25.00 per litre), VAT (KSh 25.45 per litre), and other charges.

When millions of litres of fuel are consumed across Kenya every month, this levy generates billions of shillings annually for the Petroleum Development Fund.

The Controversy: Has the Money Been Used Properly?

Here’s where things get complicated. Over the years, the Auditor General and parliamentary committees have raised serious questions about how funds from the Petroleum Development Levy have been used.

The main concerns include:

• Vague purpose: The original Act wasn’t specific about how the money should be spent, only mentioning “development of common facilities” and “matters relating to oil industry development” as directed by the Cabinet Secretary
• Diverted funds: Audits have revealed instances where money from the Petroleum Development Fund was used for purposes not clearly related to petroleum infrastructure or price stabilisation
• Lack of transparency: Until recent proposed amendments, there was limited oversight on how the Cabinet Secretary could direct the use of these funds
• No borrowing allowed: The Act specifically prohibits the fund from borrowing money, meaning it can only use collected levies – but this restriction hasn’t always been followed in practice
  
  

Recent Changes and Proposed Reforms

Recognising these issues, Parliament has proposed several reforms to make the system more accountable:

1. Clear purpose: Explicitly stating that the levy can be used for price stabilisation during oil price spikes
2. Advisory Board: Creating a Petroleum Development Fund Advisory Board with representatives from Finance, Energy, Petroleum ministries, and EPRA to approve how funds are spent
3. Parliamentary oversight: Requiring the Cabinet Secretary to seek consent from the Advisory Board before drawing down funds, with conditions attached to expenditures

   These reforms aim to ensure that when you pay that KSh 5.40 per litre, the money actually goes toward stabilising fuel prices and developing petroleum infrastructure, not other unrelated government expenses.

What This Means for Motorists

Understanding the Petroleum Development Levy helps you see the bigger picture of fuel pricing in Kenya:

The Good: In theory, this levy creates a buffer fund that can be used to keep pump prices stable when global oil prices surge, preventing the kind of extreme price spikes seen in other countries.

The Challenge: Without proper oversight and transparency, there’s no guarantee the fund is being used as intended. When fuel prices rise sharply despite this “stabilisation fund,” Kenyans have every right to ask questions.

Your Right to Know: As consumers paying this levy, you deserve transparency about how these billions of shillings are collected and spent.

Breaking Down Your Fuel Price: Where Every Shilling Goes

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.

The Bottom Line

The Petroleum Development Levy is meant to be a tool for stabilising fuel prices and developing Kenya’s petroleum infrastructure. While the concept is sound, implementation and oversight have been problematic. Recent reform efforts show that lawmakers are listening to consumer concerns about transparency and accountability.

As a motorist, knowing about this levy empowers you to:

• Understand where your money goes
• Demand accountability from authorities
• Make informed decisions about fuel consumption
• Advocate for better management of petroleum sector funds

The next time you’re at the pump, remember: you’re not just buying fuel – you’re contributing to a fund that should, in theory, make fuel prices more stable for all Kenyans.

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