The Energy Rebate Programme will be a strong catalyst for Industry Growth

By Phyllis Wakiaga

In history, energy innovations and the industrial revolutions have always intertwined. Historian Robert Allen, in his 2009 account of the British Industrial revolution, credits the use of Coal as a catalyst for the spouting of new innovations that brought about an industrial revolution in Britain. The more efficient and affordable the use of Coal, the more its uses in that economy increased and the more industry thrived.

Energy cost and availability have always been central to industrial growth and consequently, sustained economic development for many countries around the world. To achieve any substantial and long-lasting economic impact for Kenya, we must position the issue of affordable and efficient use of energy at the centre of our development discourse.

With our competitiveness as a country in the balance, Kenya has had to have serious discussions on how to reduce the cost of energy to ensure that industry’s capacity to produce is boosted.  Even if the production of Energy has increased overall, as long as industry is not operating at full capacity (and costs remain high), it will not be consumed as it should and a lot of it will go to waste. So in the past two years, two main solutions have been proposed towards meeting these challenges; one being the Time of Use Tariff, and the second is the Electricity Cost Rebate Programme.

Time of Use tariff (ToU) was launched to incentivize manufacturers to use more energy at their off-peak times, and for most, this translates to night time. The uptake of the Time of Use tariff has been on the increase on a monthly basis with industry savings rising from Ksh 78.8 million in December 2017 to 196.7 million shillings in December 2018. An analysis of the top 17 TOU individual companies indicates that the highest firm beneficiary during the first 12 months saved a total of Ksh. 52 million whereas the lowest saved Ksh. 5.4 million.

On the other hand, the Electricity Rebate Programme was designed to significantly reduce the expenses on electricity by manufacturing companies both large and small, by deducting the taxation on a percentage of their electricity bills. This was done through the amendment of section 15 of the Income Tax Act in 2018, which ultimately provides that 30% of electricity costs incurred by manufacturers will not be subjected to tax.

The intended impact of the rebate programme promises to be massive for local industry. Its effective implementation will enhance the competitiveness of locally made products in the region. For instance, the electricity cost to produce a bag of cement is on average about 20% of the overall cost of production. With the rebate programme, the cost of the same bag will reduce by an approximate 5%. It is also projected that the impact to GDP will be immense as the 30% rebate will reduce the cost of doing business for manufacturers and therefore enhance their capacity to produce for local markets and grow exports. This is why industry now calls for the immediate gazettement of the rebate programme to enable it take effect, and begin to bear fruits for the country.

It is important to note that the measures above are mainly short term, as the ultimate goals is to reduce the cost of electricity to single digit level, specifically to 9 US cents per KiloWatt Hour, to spur the growth of the manufacturing sector, and enable its contribution to GDP increase to the desired 15% by the year 2022.

For this to happen, Kenya has to look at employing a combination of affordable energy schemes, energy efficiency strategies and technologies as well as embracing sustainable alternative energy sources to restore and protect our environment and natural resources. 

The Writer is the CEO of Kenya Association of Manufacturers and the UN Global Compact Representative for Kenya. She can be reached at ceo@kam.co.ke.