Ministry wants tax on ethanol waived  

The Ministry of Energy and Petroleum is seeking a tax waiver for ethanol so that it is used in fuel production.  

The principal secretary Joseph Njoroge  in a letter addressed to his National Treasury counterpart, Mr Kamau Thugge, said tax on ethanol should be reviewed to facilitate appropriate pricing to enhance its use in motor vehicles. He said ethanol would initially be used  as blended fuel with 10 per cent petrol and later as a pure fuel when the motor vehicle technology in Kenya allows it.

Mr Njoroge said the current taxation at Sh120 per litre does not allow sugar companies and other entities to venture into large-scale power ethanol production. This, he said curbs its use in making household and motor vehicle fuels.

The high tax renders pricing of the product uncompetitive compared with petrol and kerosene at current market prices. The amendment of the tax is also expected to facilitate use of ethanol for cooking by households.

The letter is also copied to the Kenya Revenue Authority (KRA) commissioner general John Njiraini.

“I wish to confirm that blending regulations have been in place since 2010 and a blending facility was constructed at the Kenya Pipeline Corporation, Kisumu depot for purposes of blending ethanol with petrol on a pilot basis for Kisumu, Eldoret and Nakuru,” Mr Njoroge noted in the letter dated February 9.

FUEL BLEND

“It is, however, noted that no ethanol has been blended in line with the regulation since the establishment of the blending facility.”

The energy PS said the projects that promote the use of ethanol as an alternative form of clean energy have faced major setbacks in obtaining tax exemptions for locally produced ethanol and for importation of ethanol stoves.

“The major problem cited is the high taxation of alcohol (ethanol) in the range of Sh120 per litre on all alcohol (ethanol),” the energy PS further stated.

The Energy ministry proposed that in the review,  ethanol for use as household cooking fuel (at 96 per cent concentration) and that for use as motor-vehicle fuel (with 99.5 per cent concentration) be separated from the ethanol that is used in the production of spirits.

It was proposed that the review should be considered during the 2015/16 budget preparation.

Crops such as sorghum, corn and millet can be used as raw materials for ethanol production. Studies indicate that over the last 20 years, fuel ethanol has emerged as a very important agricultural product.

Countries such as the US have embraced ethanol fuel as a clean and renewable energy source and to lessen their dependence on foreign oil imports.

According to Purdue University in the US, fuel ethanol is an alcohol produced by yeast (for fermentation) from sugars. It is the same alcohol that is produced by yeast in beer, wine and spirits.

Fuel ethanol is highly concentrated to remove water and is blended on a lower scale with other fuels for use in cooking and motor vehicles.

Studies indicate that all motor vehicles on the road today can use petrol and ethanol blends of up to 10 per cent ethanol (90 per cent petrol), a phenomenon referred to as ‘E10’. This type of fuel is considered cleaner than the fossil fuels such as kerosene, diesel or petrol.

This could open up another opportunity for farmers who only this month got a reprieve when the National Treasury agreed to reduce excise duty on alcohol manufactured from sorghum, cassava and millet. 

SUCCESSFUL BLENDING

Ethanol was adopted in Kenya as a fuel blend for gasoline in 1983.

However, due to problems related to production, leading to unsustainable pricing, its use was stopped in 1993. Existing sugar factories have the potential to produce ethanol for use in the domestic market.

“The sugar companies are willing to diversify into other production lines besides sugar in order to improve profits. The companies therefore require support from the ministries responsible for Energy and Petroleum, and Agriculture as well as the National Treasury in successful implementation of the diversification process,” the ministry says. 

Whereas sugar companies are set to be the first beneficiaries of fuel ethanol as a source of energy, the opportunity for blending ethanol for motor vehicles is expected to be the next step.

The ministry notes that currently, it is possible for the power ethanol to be blended up to 15 per cent with petrol for motor vehicle use without having to modify car engines.

“Successful blending would open up the market for power ethanol/alcohol and subsequent importation of flexible fuel vehicles, which could lead to further reduction in the petroleum import bill through increased use of motor vehicles that can use pure (100 per cent) power alcohol,” the ministry says.

Power ethanol is often exported out of Kenya and re-enters the country as a household fuel (alcohol gel) free of tax thus denying the country revenue. The gel could be produced in the country and marketed at favourable prices as opposed to Sh130 per litre (ex-factory currently), while buying it at an equivalent of Sh76 per litre in Arusha Tanzania.

The ministry says the government stands to benefit from the trade in both household and motor vehicle use ethanol, whose development “would be occasioned by tax waiver/reduction”.

“Besides opening up the ethanol market, review of current taxation on these two products it would create jobs though investment in cane growing in unexploited areas, such as the Coast region, stove production by small enterprises, and alcohol distribution by both wholesalers and distributors,” the ministry says.

“Opening up a sector for clean, affordable alternative energy will spark private investment in the development and promotion of clean cooking technologies within the country, which are currently limited due to lack of affordable fuel alternatives.” 

 According to Consumer Choice Ltd, a renewable energy firm, there is currently a potential market of about 2.23 million urban households in Kenya who currently use a mix of charcoal and kerosene who can be introduced to ethanol gel.

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SALIENT POINTS

•  Energy PS Joseph Njoroge says blending regulations have been in place since 2010 and a blending facility was constructed at the Kenya Pipeline Corporation, Kisumu depot for purposes of blending ethanol with petrol on a pilot basis for Kisumu, Eldoret and Nakuru.

•   Despite regulations and facililty  being in place, no ethanol has been blended with high taxation being blamed for this state of affairs

•  Mr Njoroge says  projects that promote the use of ethanol as an alternative form of clean energy have faced major setbacks in obtaining tax exemption.

•  Studies indicate that all motor vehicles on the road today can use petrol and ethanol blends of up to 10 per cent ethanol (90 per cent petrol), a phenomenon referred to as ‘E10’.

•  Ethanol was adopted in Kenya as a fuel blend for gasoline in 1983.  However, due to problems related to production, leading to unsustainable pricing, its use was stopped in 1993.