Parliamentary budget think tank wants fuel subsidy cash used for power connections

The Parliamentary Budget Office (PBO) wants some of the money collected from motorists through the Petroleum Development Levy (PDL) to cushion them from sudden spikes in fuel prices to finance electricity connections in off-grid areas.

This, PBO noted, would help increase investments in power infrastructure, particularly in far-flung areas that lack connectivity.

The PBO is an independent think tank that provides timely and objective information and analysis to support parliamentary oversight of budgetary processes.

The office observes in a new report that many Kenyans, especially in the rural areas, still lack access to reliable electricity.

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Despite progress made in expanding access, it notes, achieving universal access to power might remain a pipe dream if it is solely dependent on government funding.

The parliamentary think tank has recommended that 30 per cent of the funds collected through the PDL be allocated to the expansion of electricity infrastructure in rural areas. 

It has in a new report proposed that legislators amend the PDL law to expand the scope of the Fund to make some of the funds available for last-mile connectivity and rural electrification.  

Motorists pay a PDL of Sh5.40 per litre of super petrol and diesel they consume. The funds, which are in excess of Sh30 billion per year, are used to subsidise local pump prices wherever there is a spike in imported fuel products due to factors such as erratic international prices or the weakening of the shilling.

The levy, introduced in 1991 at 40 cents per litre, shot up in July 2021 to Sh5.40 for super petrol and diesel. It is still at 40 cents for other fuels such as kerosene. 

PBO said the need to cushion motorists is now minimal “given the decline in crude oil prices” and that “a portion of the fund could be utilised toward electrification efforts”.

“Therefore, expanding the Petroleum Development Levy Fund’s scope to include last-mile connectivity and rural electrification is critical. Considering the budget deficits for the aforementioned projects, Section 4(4) of the PDL Fund Act, 1991 can be amended to provide for up to 30 per cent of the PDL Funds to be utilized for these projects,” said BPO in a new report on budget implementation.

It added that over the 2024-25 financial year, the annual collections in the PDL Fund are projected to amount to Sh30.85 billion.

Of this, Sh27 billion is expected to be used for the stabilisation of pump prices, another Sh3.31 billion for the development of the petroleum industry and Sh540 million for projects in alternative energy technologies programme.

BPO said that despite the government’s progress in the expansion of the transmission and distribution networks, 62.7 per cent of Kenyan households, predominantly in rural and off-grid areas, lack access to reliable electricity from the main grid. 

“This energy deficit hinders economic development, limits access to essential services like education and healthcare, and perpetuates poverty. While initiatives like the Last Mile Connectivity Project, electrification of public facilities, and the installation of transformers have improved access, sustained funding remains a critical challenge,” said the think tank.

The Last Mile Connectivity Project, a government-led initiative funded by the World Bank and implemented by Kenya Power, was aimed at increasing connectivity across the country by connecting Kenyans close to the grid but without power.

While it increased the number of Kenyans with access to electricity, it, however, dented Kenya Power's bottom line owing to delays by the Treasury in releasing funds for the project.

Many new connections also consumed minimal electricity, which did little to grow revenues for the firm. 

The PBO also proposed setting aside 30 per cent of the money collected through the Rural Electrification Programme (REP) levy that can then be used to operationalise off-grid power stations to cater for Kenyans who are yet to be served by the electricity grid.

Electricity consumers pay the five per cent REP levy whenever they pay for power bills. The levy is collected by Kenya Power and passed to the Rural Electrification and Renewable Energy Corporation (Rerec) to fund rural electrification projects. 

These include the electrification of public facilities, installation of transformers, and connection of households who are within a 600-meter radius of the distribution transformers.