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Parliament budget office wants petrol taxes to fund last-mile electricity projects
The Parliamentary Budget Office has proposed that up to 30 percent of Petroleum Development Levy collections be allocated to fund electricity connections in rural areas.
Billions of shillings collected from motorists for every litre of petrol and diesel bought could be used to fund the last-mile electricity connectivity (LMC) projects if lawmakers and the Energy Ministry adopt a proposal by the Parliamentary Budget Office (PBO).
The PBO—the office that advises lawmakers on budget and economic affairs—has proposed that up to 30 percent of Petroleum Development Levy (PDL) collections be allocated to fund electricity connections in rural areas.
“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 percent of the PDL funds to be used for these projects,” PBO says in its latest review of the Budget Options for 2025/26 and the Medium Term.
“With stabilisation needs now nominal, given the decline in crude oil prices, a portion of the fund could be utilised towards electrification efforts. Therefore, expanding the PDL Fund’s scope to include LMC and rural electrification is critical.”
Motorists pay Sh5.40 for every litre of petrol and diesel while homes that use kerosene pay Sh0.40 per litre, which is put into the PDL account. The PDL Act states that the fund shall be used for the development of the oil industry, including stabilising the local petroleum pump prices in instances of sharp rises occasioned by high landed costs above a threshold determined by the Energy and Petroleum Regulatory Authority (Epra). The proposal is meant to resolve the funding gaps that have derailed the LMC and rural electrification projects due to significant budget cuts by the Exchequer and the inability to secure partners to fill the gaps.
The government has in recent months sparingly stabilised prices, largely due to the knock-on effects of a strengthening shilling, which has lowered the cost of importing fuel. Reduction in shipping costs of fuel is key in lowering pump prices, thus taking away the need to tap the PDL kitty.
LMC and the rural electrification projects have in the past few years been scaled down largely due to minimal funding from the Exchequer. The cuts have left huge holes that have not been fully filled by partners such as the African Development Bank.
PBO’s proposal, if adopted before June this year, could hand Kenya Power and the Rural Electrification and Renewable Energy Corporation an extra Sh9.25 billion to finance electrification in rural Kenya.
The figure is based on estimations for PDL collections for the current financial year which show that the kitty will raise Sh30.85 billion.
This year’s collections, if achieved, will be an increase of Sh6.51 billion from Sh24.34 billion raised a year ago.
In the current financial year, Sh27 billion will be used to stabilise fuel prices, Sh3.31 billion for the development of the petroleum industry, and Sh0.54 billion to fund projects in alternative energy technologies.
PDL was raised from Sh0.40 for every litre of petrol, diesel, and kerosene in 2020, as the government sought to ensure the availability of billions of shillings to cushion consumers whenever there is a spike globally.
