- The two houses of parliament are currently undertaking enquiries to see what can be done to reduce the cost.
- These enquiries have come on the back of a similar National assembly enquiry in the 12th Parliament and three taskforces appointed by the Jubilee government to look into reducing costs.
Image: HANDOUT
Reducing the cost of power has been a matter of great national debate.
The two houses of parliament are currently undertaking enquiries to see what can be done to reduce the cost.
These enquiries have come on the back of a similar National assembly enquiry in the 12th Parliament and three taskforces appointed by the Jubilee government to look into reducing costs.
There is a clear call to reduce the cost of electricity as a component of reducing the cost of living and increasing competitiveness of the market.
The cost of electricity at the consumer level is composed of three parts.
The first is the cost of producing the electricity also known as the generation cost.
The second is the cost of delivery of the electricity from the generator to the consumer also known as the transmission, distribution and retail cost.
Third are the various collections that are made through the electricity bill, referring to the taxes and levies such as the value-added tax and the water resources management levy.
The first two components have been the subject of much of the enquiries that the nation has been subjected to with the aim of reducing costs.
This has included efforts to reduce the costs of generation, reduce the losses related to technical parameters in the transmission and distribution grid and losses related to the theft of power by big and small consumers.
The third part of the bill has however not faced scrutiny and has experienced increased costs over this period.
It is dumbfounding to note that the WRA levy is being increased 100 times while the cost of petroleum and especially HFO used in electricity generation will increase with the recent 8 percent increase in VAT on the cost of petroleum as in the Finance Act 2023.
Let us look at these two separately.
The VAT on fuel used in power generation is significant because 70 percent of the generation cost from thermal plants is related to the cost of fuel.
This today means that 5.6 percent of the cost of thermal generation is VAT on fuel, a cost that the finance act will double to 11.2 percent.
Not forgetting that the final cost of generation or energy cost as referred to in the consumer bills is again subject to a further 16 percent VAT at the point of sale to the consumer.
We are effectively applying VAT twice to the fuel that is used in the generation of electricity.
If we were reading from the same script on the reduction of electricity costs, then the VAT on fuel used for electricity generation should have been waived or at the very least reduced.
The Water Resources Authority formerly WARMA in a bid to increase the revenue it collects has also increased the levy on water used in the generation of electricity from Sh0.01 per unit to Sh2 per unit.
The authority is doing this by implementing the legal notice 171 of 2021 whose implementation had previously been suspended.
This passes a Sh2 increase to the cost of electricity generated by hydropower sources.
Hydropower plants do not abstract water from rivers but have the water passed through turbines and allowed to flow downstream.
This is not like abstraction for use in irrigation or other consumptive activities.
The levy also charges powerplants on the same river severally for the same water flowing in and out of cascading hydropower plants.
This means that on Sagana / Tana River Sh2/ unit is to be paid for the same water that passes through Sagana, Tana, Masinga, Kamburu, Kindaruma, Gitaru and Kiambere by each of the dams.
To reduce the cost of generation, transmission, distribution, and retail, only to increase the taxes and levies leaves the consumer with no benefit.
If we indeed look to reduce the cost of electricity, we must all pull in the same direction.
Instead, we have different actors pushing in different directions implying that should they both succeed we will end up in a stalemate with no change in cost, but money transferred from one set of public and private investors to the coffers of state agencies.
The steep increase in WRA levy on power generation and the increased taxation on fuel for thermal generation should be relooked at.
George Aluru is the Chief Executive Officer of the Electricity Sector Association of Kenya (ESAK)