Petrol, electricity prices to rise on new levy plan

In the inflation basket, petroleum prices have a direct effect on the transport and utility baskets. FILE PHOTO | NMG

By JOHN MUTUA
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Summary

• The formula proposed by the Energy ministry will see the regulatory levy on petroleum charged at up to one percent of the combination of the landing, transport and storage costs of fuels instead of the current fixed charge.
• The ministry is also recommending a new levy of up to one percent on the consumption charge for electricity under the proposals already endorsed by the Energy committee of the National Assembly.
• Currently, EPRA calculates the two levies in shillings per litre for fuel and shillings per kilowatt-hour for electricity.

Consumer prices of petroleum and electricity are set to climb if Parliament approves a new taxation formula aimed at boosting the finances of the Energy Petroleum Regulatory Authority (EPRA).

The formula proposed by the Energy ministry will see the regulatory levy on petroleum charged at up to one percent of the combination of the landing, transport and storage costs of fuels instead of the current fixed charge.

The ministry is also recommending a new levy of up to one percent on the consumption charge for electricity under the proposals already endorsed by the Energy committee of the National Assembly.

Currently, EPRA calculates the two levies in shillings per litre for fuel and shillings per kilowatt-hour for electricity.

The petroleum regulatory levy is presently set at Sh0.25 for every litre of petrol, diesel and kerosene and Sh0.30 per kilowatt hour based on EPRA’s latest pricing for this month.

If the proposals are passed by Parliament, EPRA levies will now fluctuate from time to time depending on the landed cost of petroleum products and the changes in the energy charge for electricity consumers.

Energy Principal Secretary Joseph Njoroge said that the proposed formula would boost collections by EPRA to fund its operations.

"The levies will now be applied as a percentage and not as fixed rates as was previously. The one percent is the limit so it can be anything below that and if it was to be increased to the set limit then there has to be a good reason to do so," he told Business Daily.

"It (regulatory levy) is a percentage of energy charge for electricity and a percentage of cost of fuel without the tax elements. We made the proposal because EPRA is expected to play bigger roles in regulating the upstream and midstream oil sectors hence their budget will change going forward."

An increase in the global oil prices for example will raise the amounts that EPRA collects through petroleum levy, setting consumers for higher prices of the products.

Going by the October prices released by EPRA, petrol prices would have risen by up to Sh0.17 a litre from the set Sh107.27 while diesel prices would have risen by at least Sh0.14 from Sh92.91. Additionally, households would have paid up to Sh0.11 more for kerosene based on the Sh83.73 pricing announced by the regulator.

Under the proposed formula, households that consume more than 10kWh of electricity would pay an additional Sh0.12 per kilowatt-hour (kWh) on the current Sh23.36.

The proposals if approved by Parliament will increase the pain on households that have been forced to cut their spending in the wake of job losses and salary cuts due to the Covid-19 pandemic.

Mr Njoroge did not disclose how much more EPRA hoped to raise from the new tax formula as it sought more funds for its operations.

EPRA last year received powers to regulate the petroleum sector, adding to its traditional role of overseeing the electricity industry.

The State agency early this year said it would open more offices across the country as part of efforts to boost regulation of the two sectors, a move that has occasioned the need for increased funding to cater for increase staff and maintenance of the offices.

The Energy committee of the National Assembly backed the proposed changes and called on lawmakers to approve them in light of EPRA’s critical role in the energy sector.

The petroleum and electricity levies are part of other fees that EPRA relies on to fund its operations that include crackdowns to curb theft and adulteration of fuels.

Consumers pay seven levies and two taxes for each litre of petroleum products while electricity buyers pay four levies and the value added tax.

The proposal comes barely two months after Kenya Power received more room to bill consumers the additional losses it incurs for electricity bought from generators such as KenGen that does not reach home and businesses — technically known as system losses.

EPRA in August reviewed consumer tariffs and allowed Kenya Power to recover system losses equivalent to 19.9 per cent of power it buys from generators from users, up from 14.9 per cent.

The Ministry of Energy estimates that the August review will lead to an increase of Sh0.20 per kilowatt hours (kWh) in the retail prices of electricity.