Third Eye

Kenya needs urgent review of energy sector policy

Thursday, July 8th, 2021 00:00 |
Energy and Petroluem Regulatory increases the price of Petrol in Nairobi. PHOTO/PD FILE


Kenyans are unhappy about the high fuel prices that have been taking an ascending swing since April.

In as much as the increase in pump prices is driven by over-dependence on imported oil, the problem is compounded by the fact Kenya charges the highest taxes and levies on fuel in the region.

Increase in pump prices also increases the cost of electricity due to fuel price adjustments.

A new trend is also emerging in which the Kenya Power and Lighting Company (KPLC) has resorted to estimated  instead of actual bills.

Rising energy costs not only put an enormous burden on consumers, it also increases the cost of doing business, making Kenyan goods and services uncompetitive.

This hits both the mwananchi and the business community hard while they are yet to recover from the  impact of Covid-19.

Normally, increased costs tend to be passed to consumers. But the times that we live in call for alternatives that ensure fairness and relief for the most vulnerable.

The establishment of Energy Regulatory Commission (ERC) was an attempt to introduce price controls through the enforcement of maximum price ceilings to cushion the consumer while guaranteeing profit margins for the oil marketers.

But we must think of better alternatives to price controls. In reviewing the energy sector policy, we should come up with policies that protect the consumer but also keep markets open and vibrant.

For starters, we should think of making changes in the computation of the applicable taxation regime because this has directly resulted in the high prices for fuel. 

Taxes now comprise 47 per cent, 40 per cent, 40 per cent of the pump price for petrol, diesel, and kerosene respectively.

In order to achieve a comprehensive energy sector  reform policy, the government should sit down with private sector stakeholders to coordinate the enormous resources at their disposal to offer public relief while incentivising production.

Drawing from my experiences at the time of Kenya’s deregulation of the energy sector in the 1990s, I believe the government and energy firms should work out a formula for cooperation.

That way, the energy sector would be driven by creativity and innovation as opposed to big money interests.

Through Parliament, the government can mitigate the high cost of energy by addressing the taxation element on fuel pricing as an emergency measure.

On electricity costs, KPLC should make the pricing more transparent and improve efficiency in supply.

A review of energy costs would bring much-needed relief to consumers, famers and the business community thereby accelerating economic growth in the short term.

In the long term, Kenya should to create and implement an holistic energy policy that is proactive in responding to consumer needs and anchored on efficient technology.

Building on the aforementioned industry cooperation, a partnership between government and private sector can eliminate existing structural challenges, thereby allowing  new investments in the sector.

This will include the diversification of existing energy sources to reduce dependence on imported energy, by including domestic sources, like petroleum, Turkana oil, and renewable energy like wind, solar and biogas. 

Renewable energy sources that are reasonably priced will not only reduce the cost of energy but  also free up much-needed budgetary allocations for government at both the national and county levels.

A transformational policy in the energy sector will champion efficiency in transportation, which will reduce the cost of doing business.

More importantly, it will create jobs and inject resources in rural economies, thus strengthen devolution.

A review of the energy policy should also seek to reduce our global carbon footprint. 

This will include the introduction of tax incentives for new technology that promotes clean sources of energy like electric cars, the introduction of urban mass transport and generation of electricity from urban waste. — The author comments on social and political issues  [email protected]

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