The government has made a U-turn and scrapped a tax it had imposed barely three months ago to protect local assemblers of electrical transformers.
In a curious move, the leader of government business in the National Assembly, Kimani Ichung’wah, has published a new Bill proposing to remove a 25 percent excise duty on imported fully assembled transformers and parts.
“This excise duty was imposed in the Tax Law (Amendment) Bill, 2024 with the intention to support local assemblers. However, the amendment has had a negative effect on the manufacture and supply of transformers by increasing the cost of importing parts,” Mr Ichung’wah said in an explainer on the Excise Duty (Amendment) Bill, 2025, which was tabled in the National Assembly on March 11.
“It is intended that this amendment will reduce the cost of electricity and enhance power connectivity through additional manufacture and supply of transformers to the Kenya Power and Lighting Company,” he added.
The U-turn raises questions about whether the State had rushed to impose the excise duty without first carrying out detailed research into its likely impact on local manufacturers and buyers.
Major manufacturers of electrical transformers in Kenya include ABB Ltd, Siemens, CG Power and Industrial Solutions, Kirloskar Electric and Schneider Electric.
However, the country still imports fully assembled transformers from countries such as China, India, Italy and Turkey.
However, the utility locked out local bidders who had failed to honour at least half of their supply orders, a move that has irked the manufacturers who argue the decision will stifle the growth of local manufacturing.
Demand for transformers has increased as the utility firm has sought to scale up connectivity, while a surge in the consumption of electricity by firms and households has piled pressure on the old transformers.
Using a $10 million (Sh12.9 billion) loan from the French development agency AFD, Kenya Power has been undertaking a transformer densification project, which involves the installation of new transformers and expansion of low voltage networks to improve electricity access and reliability, particularly in rural areas. The loan agreement was signed in 2014.
In 2015, Kenya Power had over 17,600 underused transformers, leading to the introduction of a Last Mile Connectivity programme meant to connect rural households to the grid a year later.
Initially, all transformers procured by Kenya Power were imported fully assembled.
However, the Nairobi Securities Exchange-listed firm struggled to promptly meet new connectivity demands due to high import costs and lengthy waiting times, so local assembly of transformers was encouraged.
Two years later, the Chinese company Yocean Group became the first to start assembling electrical transformers locally, as the then Jubilee administration sought to speed up the upgrading of power networks around the country. Soon, other local assemblers of electrical transformers would follow.
However, the lucrative market for these transformers has also led to corruption, with Kenya Power directors and 19 officials accused of procuring substandard transformers and outsourcing the construction of lines and related services to unqualified, unregistered companies in a scandal that would see the utility lose nearly Sh409 million.
The value of transformers that Kenya Power had as at the end of June 2024 was Sh2.18 billion, more than double the Sh1.01 billion in the previous financial year.
