Electricity rebates tipped to boost factory output in 2020

Lower power costs are seen lifting Kenyan factories in 2020 after three years of reduced credit flow and slow pace of Value Added Tax (VAT) refunds.

Profitable manufacturers qualify for 30 percent claim on total cost of power to be deducted from corporation tax paid to the Kenya Revenue Authority (KRA).

This follows gazettement of the power rebates rules in July 2019, which give all manufacturers a 20 percent refund on power costs, with the remainder 10 percent dependent on annual turnover, power consumption and capital expenditure.

Large factories operating between 10pm and 6am and producing over and above their daytime optimal capacity are also eligible to pay half the price of electricity following the introduction night-time tariffs in December 2017.

Many manufacturers have, nonetheless, struggled to meet the rules for the night-time tariffs which, among other conditions, require them to be operating day and night.

“When I look at the Purchasing Managers Index (PMI), generally what people in manufacturing are saying is the fact that the power prices have come down, and with the good rains they would expect them to come down even more because of the hydroelectric power element,” said Jibran Qureishi, lead economist for Markit Stanbic Bank #ticker:SBIC Kenya’s PMI.

The index measures monthly business activity through interviews with company managers.

The Kenya Association of Manufacturers says electricity bills account for an estimated 25 percent of total operating costs.

“You need to make power competitive for us to have import substitution and for us to be competitive,” KAM chairman Sachen Gudka said in an interview in October.

The sector was among the biggest winners in the Finance Act 2019, signed into law in November, with maximum benefits expected from beginning of this year when most of them start implementing annual investment plans.