Kenya’s fuel subsidy could have bought 28,000 electric buses!

Petroleum products make up a significant portion of Kenya’s annual import bill. Petroleum products imported by Kenya increased by 12.0% to 6.4 million tonnes in 2021, cost the country the modest sum of 3 billion dollars!

Kenya’s fuel subsidy scheme, introduced to protect consumers from soaring petrol, diesel and kerosene prices, has been a hot topic in the country. In February 2021, the Daily gave a good summary of policy interventions in Kenya’s petroleum sector. The government started collecting an additional 5 shillings per liter of fuel in 2020 as part of a development levy. It was around 5 cents (USD) per liter at the time. The money would go into an “oil development levy fund” that would be used to protect consumers when crude prices rise above $50 a barrel. Well, as we know, things have gotten a little choppy in the global energy sector over the past year, with oil well above $50 a barrel. The government had to tap into this fund to subsidize retail fuel prices to help protect consumers from price shocks. The price of oil even soared to over $100 a barrel this year, which caused some headaches as the subsidy would be unsustainable in the long run.

In his inaugural address last week after being sworn in as president, President William Ruto said: Our populations are daily confronted with increasingly unaffordable prices, particularly for food and transport. In our economic forums across the country during the campaign, citizens consistently shared their anxiety, pain and fury about this. It calls for an urgent and decisive resolution. The interventions in place have not borne fruit. For fuel subsidies alone, taxpayers have spent a total of KShs 144 billion ($1.2 billion) or KShs 60 billion ($500 million) in the last 4 months.

A Twitter user ephraimnjegafans had an interesting analysis of this grant. He says the money could have been used for longer-term solutions like buying electric buses. “That money could have bought 28,000 electric buses at a cost of KSh 5 million each.” Here he was referring to BYD K6 electric buses which are available for purchase in Kenya for KShs 5 million each excluding the battery. Bus operators can then hire the batteries for KSh20 ($0.18) per km on Basigo’s pay-as-you-go model for the battery and associated services. The user goes on to add that this decision would help reduce long-term electricity costs as part of an accelerated adoption of electric mobility that will consume “idle” energy.

Kenya’s total installed power capacity has increased from 2,836.7 MW in 2020 to 2,991 MW in 2021. Peak demand is close to 2,200 MW. However, during the off-peak night, demand drops to around 1,200 MW. This means that the power company has some excess capacity at night, which causes geothermal steam to be vented. Kenya has been very successful in increasing the share of renewables in its power generation mix. Renewables provided 89% of Kenya’s electricity generation in 2021, with contributions from geothermal, wind, hydro and some large-scale solar. Kenya is one of the major players in the geothermal space and is in the top 10 globally for installed geothermal generation capacity. Kenya’s installed geothermal capacity is now close to 1,000 MW. It would be a shame to continue to waste all this clean geothermal energy during off-peak periods.

Minibus operators in Nairobi say their daily operations are usually around 200 km per day. The BYD K6, with a range of around 250 miles in city driving, could potentially meet their needs throughout the day and then be charged overnight at the depot. The 28,000 buses that charge overnight could then help boost electric utility revenue by absorbing kWh at night while displacing some diesel imports, saving foreign exchange.

A study by Madara et al. in 2018, with data up to the end of 2017, indicates that a total of 55,435 minibuses (matatus) have been registered in Kenya since 1968. Their paper also suggests that the number of matatus in service is estimated at between 11,056 and 14,789. Since 2017, KNBS data shows that 459, 812, 1932, 1084 and 822 new matatus were recorded from 2017 to 2021, respectively. This means that a total of 4,297 matatus have been added since this study. Using the higher figure and assuming that none of the 4,297 new matatus are out of service, this would mean that a total of 19,086 matatus are active in the whole of Kenya. It makes you think – 28,000 brand new electric BYD K6s would have transformed the public transport sector in Kenya.

In March this year, Acting CEO of Kenya Power, Rosemary Oduor said: “Kenya Power can supply electricity to charge 50,000 buses and two million motorbikes during off-peak hours.” Therefore, KPLC can comfortably charge 28,000 electric minibuses.

In his address shortly after being sworn in as President, President William Ruto reaffirmed Kenya’s commitment to transition to 100% clean energy by 2030. During his campaign, President Ruto’s Kenya Kwanza Coalition came up with a pretty impressive manifesto that included strong support for electric mobility.

Kenya has plenty of clean, renewable, locally generated electricity that can help improve Kenya’s energy security, as well as reduce costs in the transport sector. Kenya has a lot to gain by replacing a significant share of imported petroleum products with this clean, locally generated electricity by accelerating the adoption of electric vehicles. Imports of petroleum products represent a significant portion of Kenya’s import bill. With Kenya’s ever widening trade deficit, this import substitution will need to be addressed as soon as possible. According to the latest economic survey from the Kenya National Bureau of Statistics (KNBS), there was a 30.9% growth in imports in 2021. The increase in imports widened the trade deficit by Kshs 999.9 billion in 2020 to KSh 1.4 trillion in 2021. That’s a trade deficit of about $11.8 billion! Imports increased from KSh 1.6 trillion in 2020 to KSh 2.1 trillion, mainly due to an increase in imports of petroleum products.

Kenya’s trade deficit over the past 5 years

Source: KNBS Economic Survey 2022

Kenya Petroleum Fuel Imports in the Last 5 Years

Source: KNBS Economic Survey 2022

The fuel subsidy has been removed for gasoline for now, sending gasoline prices to an all-time high. Subsidies remain in place for diesel and kerosene.

We hope that the new government will act quickly to accelerate the adoption of electric mobility.

Featured image courtesy of Vinfast

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