Blow to Kenya Power as State targets tax hike on transformers

The government is seeking to slap a 25% excise duty on transformers and their parts in what is set to be a heavy blow for Kenya Power.

The utility is the sole power distributor and is the largest buyer of transformers in the country. Transformers are critical for stepping power voltage up or down to the required level for use by customers.

The proposal to impose excise duty on transformers is contained in the draft Tax Laws (Amendment) Bill, 2024. The Bill was published on Friday by National Treasury Cabinet Secretary John Mbadi for public participation.

It (the Bill) proposes to impose excise on electric transformers and their parts

treasury cabinet secretary john mbadi

Kenya Power Managing Director Dr Joseph Siror could not be reached for comment on the proposed tax.

Nonetheless, the new tax will make it more expensive for the company to procure transformers, which are critical for expanding the national power grid.

The company has already been struggling with a shortage of transformers in recent years due to inability to procure new ones partly because of cost-related issues as well as legal challenges.

Kenya Power revealed earlier this year that prices for a typical transformer start from about Sh500,000 but this depends on its capacity.

Most of Kenya’s transformers are imported.

The utility buys thousands of new transformers every year and also has repair sheds for faulty transformers in major towns to save on costs.

Tenders for supply of transformers are fiercely fought by both local and global manufacturers, with the contracts often running into billions of shillings.

The increased cost of transformers will also likely be passed on to consumers through higher base tariffs. The cost of buying the equipment forms part of the company’s operational and maintenance costs.

The current base tariffs were set by the Energy and Petroleum Regulatory Authority (EPRA) last year and will be in place until June 2026.

Thereafter, EPRA is expected to publish a new tariff that will be in place for a further 3 years in line with the Energy Act, 2019.

A higher base tariff will be a blow to Kenyans at a time when they are already paying the highest electricity prices in the region.

These high electricity prices have made the cost of living and doing business unbearable for many consumers, forcing an increasing number of them to switch to their own energy sources such as solar PV.

info@theenergyreview.com