Electricity rebate activation a shot in the arm

Wednesday, September 11th, 2019 00:00 |
Power grid. Photo/Courtesy

Sachen Gudka       

The single catalytic factor of thriving economies across the globe is energy; the cost, quality and reliability of it.

Other than its use in industries and households, the ability of a country to easily access energy to power daily lives is a universally recognised marker of development and progress. 

Affordable and accessible energy has been linked to the growth of local economies, especially its impact on increased quality production of domestic goods for local consumption and export.

Country’s running 24-hour economies can attest to the critical role of energy in making this happen. 

For some vital sectors of Kenya’s manufacturing sector, electricity takes the lion’s share of total production costs.

For instance in the cement sector, electricity cost averages about 20 per cent of total cost of production, whilst for the steel sector the cost accounts for 20-30 per cent and more than 10 per cent for the textile sector.

Viewed as a whole, Industry is currently the biggest consumer of electricity generated in the country, using up approximately 4,225 Gigawatt.

The  government  is committed to developing measures for reducing the cost of electricity to a single digit level to spur the sector’s growth.

As a result, the National Treasury and Planning, through the Finance Act, 2018 amended section 15 of the Income Tax Act to enable manufacturers and other heavy power users to deduct 30 per cent of their electricity expenses from their taxable income. 

The implication of this amendment in Finance Act, 2018 is that  30 per cent of electricity cost incurred by a manufacturer is treated as an allowable expense for tax purposes subject to the condition set by the Ministry of Energy.

Despite others pointing out the fact that the rebate portends a possible reduction in the government’s income tax from the industries, on the converse, the rebate will enable firms to produce more for local and export markets thereby increasing their competitiveness, which in turn means more revenue streams for the government. 

The 30 per cent rebate, which has now been brought into effect after its gazettement, is therefore a win-win for both the government and manufacturers.

This is a significant turning point  regarding  the policy conversations on energy, and the opportune moment for industry to maximise  productivity. 

If well utilised the rebate programme could potentially result into long term benefits for the country such as the improvement of   balance of trade; because it will act as a great impetus towards boosting the competitiveness of locally made products against low-cost imported merchandise.   

The rebate programme follows the decision by government to introduce the Time of Use Tariff whose uptake has been increasing, with industries savings  more than doubling from Sh78.8 million to Sh196.7 million in one  year. 

A journey of a thousand miles begins with one step. In our case, we have taken some key first steps towards our end goal to reduce the cost of electricity to 9kw/h for the entire manufacturing sector. 

The focus is on making the effect of these steps long-term and far-reaching, in order to achieve our economic goals and boost Kenya’s ability to attract investors. 

A good way to do this would be for the Ministry of Energy to adopt and implement the recommendations on the Least Cost Power Development Plan 2017-2037 (LCPDP 2017-2037) developed by the sector planning committee. 

More specifically on boosting the demand for the existing geothermal plants to match supply before introduction of new plants. 

Another move would be to fast-track implementation of flagship projects as identified under Vision 2030 to facilitate the creation of the Eastern Africa power pool electricity market. 

Indeed, if we carry on in this trajectory then our goal for economic development powered by industry is not a far off dream but a rather conceivable reality for our country. The writer is the Chairman of the Kenya Association of Manufacturers. [email protected]

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