Kibaki orders power levy review

October 6, 2008
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, NAIROBI, October 6- President Mwai Kibaki has directed the review of electricity tariffs downwards to ease the operating costs on manufacturers.

While inaugurating the second National Economic and Social Council (NESC) on Monday, the President observed that the prices were getting out of hand and needed to be lowered to ease the financial strain on Kenyans.

“I have directed the ministries of Energy and Finance to review taxes and levies on electricity in order to bring down power costs,” he said adding that the Kenya Revenue Authority should also issue Value Added Tax (VAT) refunds within two months.

Once implemented, there will be no VAT on fuel cost adjustment or the foreign exchange component.

The directive is expected to provide an incentive for manufacturers, many of whom had threatened to relocate to neighbouring countries with lower energy costs.

Speaking to journalists after the launch, Energy Minister Kiraitu Murungi did commit on the exact date of implementation for the directive.

The minister said he would need time to consult with the Finance Minister on the best way forward.

Acting finance Minister John Michuki is currently out of the country on official assignment.

The presidential directive also came barely an hour after Energy Permanent Secretary (PS) Patrick Nyoike revealed to Capital Business that Treasury had agreed to consider manufacturers’ request to do away with VAT on power generation.

“I received a letter from the PS Treasury Joseph Kinyua who noted that the government should not benefit from a crisis of the escalating oil prices because of the adverse multiplier effect on production,” Mr Nyoike explained.

He disclosed that senior officials had met representatives of the private sector last week who also asked the government to further subsidise the cost of power generation.

The subsidy is currently being given in form of a fixed charge for the emerging power capacity.

He however said this appeal was not feasible as the government would require an additional Sh4 billion in the 2008/2009 budget. Sh6.8 billion has already been allocated to subsidise the emerging power in the budget.

“What they are saying is that we should allocate Sh10.8 billion, but since the government does not have a balanced budget, the implication would be to go into additional borrowing. This would deny the private sector access to credit,” he explained.

On high fuel prices, Mr Nyoike said it was impossible to waive taxes on fuel arguing that the government could lose close to Sh40 billion if it did.

“This is the money that is needed for the Free Primary Education Program, medicines and such things. If you waiver those costs, there will be implications in other areas,” he added.

In Kenya, taxes and levies on a litre of petrol is Sh29 while on diesel and kerosene is Sh19 and Sh7.

“Certain problems cannot be handled the way people want. We have to look for alternative solutions and the National Energy Conference (slated for October 7) is set to look into that,” Mr Nyoike added.

He however forecasted that the state-owned National Oil Corporation would in the coming weeks reduce their prices further thus easing the burden on consumers.

Asked whether the government and its Sudanese counterparts had worked out the modalities of how to supply Kenya with 500,000 metric tonnes of crude oil per month, MrNyoike said their visit to Sudan didn’t bear any fruits.

However, he disclosed that they had invited the Sudanese Energy Minister to Kenya in the last week of October to iron out those details.

The PS however explained that the country could only get the oil and re-sell it because it does not have the capacity to refine the commodity from Sudan.

“Sudanese crude oil goes to the Far East but it very paraffinic and has low sulphur and our refinery is not able to process it,” he added.

Nyoike said the proceeds from the sale would go towards financing the country’s development projects.

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