The government is considering introducing excise duty on coal to increase revenues, coming a year after President William Ruto expressed goodwill for mining of local coal reserves.
According to the draft 2024 Budget Policy Statement (BPS) released by the National Treasury last week, excise duty on coal is one of the fresh taxes the Kenya Kwanza government is considering to raise revenues.
“The strategies for boosting revenue collection focus on all the tax heads, income tax, VAT, excise duty and customs duty,” said the Treasury, which did not however indicate the rate at which the proposed excise duty on coal will be set.
Coal is used as a cheap energy source by heavy industries such as cement and steel manufacturers who import millions of tonnes of the product annually to fire their plants.
The Energy and Petroleum Regulatory Authority (Epra) says fossil fuel is one of the energy resources that Kenya is considering given the substantial local deposits and relatively low production costs.
“The low cost of coal makes it suitable as a fuel for industrial heating and power generation,” said Epra in its statistics report for the energy sector covering the year to June 2022.
Kenya has proven coal reserves with a depth of up to 27 metres in the Mui Basin straddling Kitui County. Some 400 million tonnes of coal reserves were confirmed in Block C109 alone.
The coal basin stretches across an area of 500 square kilometres and is divided into four blocks namely; Block A (Zombe–Kabati), B (Itiku–Mutitu), C (Yoonye–Kateiko) and D (Isekele-Karunga).
For power generation, Epra has licensed three captive coal generation plants –Devki Energy, National Cement and Cemtech Limited– with a total capacity of 58.5 megawatts (MW).
“Coal is gaining prominence as a captive power source in industries owing to its low cost,” said Epra.
However, the country’s bid to generate coal power on a grid level collapsed amid stiff resistance from environmentalists who raised concerns about the effect the proposed plant in Lamu would have on the environment. Key funders and partners also pulled out of the project.
The Amu Power project –a joint venture between Gulf Power and Centum Investment Company Plc– was to build a coal-fired power plant with an installed capacity of 981.5MW.
The move to tax coal comes after President Ruto in November last year revealed his support for mining of the Kitui coal, adding that the country was losing billions of shillings in foreign exchange every month to import the product when it is available locally.
Kenyan firms import coal from countries such as South Africa and China.
“We need to ask ourselves the rationale of importing coal from other countries when we have our own,” said the President.
