State goes after electric cars as road levy funding dims

The 100 per cent NETA V electric vehicle being showcased by MOJA EV Kenya Limited at Sameer Business Park in Nairobi, on May 31, 2024. [File, Standard] The country's adoption of electric vehicles might fuel the development of more toll roads as the government agonises over a new source of revenue to replace the guaranteed Road Maintenance Levy Fund (RMLF). The RMLF, whose contributions come from petroleum products, currently charged at Sh25 per litre of petrol and diesel, is the main pot from where the government allocates money to rehabilitate roads. With the number of newly registered EVs expected to be at par with their internal combustion engine (ICE) counterparts in the next decade, concern has been raised about how else the government is expected to get money for roads. The National Electric Mobility Policy 2026 recently launched by Transport Cabinet Secretary Davis Chirchir has in it the proposal to transition the country to a 'user-pays' model, which will have the RMLF being replenished through toll booths rather than the fuel pump. The document also has timelines on when relevant regulations, policies and laws should be in place in this race against time. The policy says the government will need to develop sustainable alternative financing mechanisms to reduce reliance on the fuel levy for road development and maintenance due to increased adoption of e-mobility. Despite challenges with the cost of electricity and charging infrastructure, data from the Electric Mobility Association of Kenya (EMAK) shows the number of EVs in the country grew from 1,057 in 2022 to the current over 43,000. A majority of them are electric motorbikes. "At the current growth rate, it is evident that the number of newly registered EVs will surpass internal combustion engine vehicles in 2042 and beyond," the policy says. To ensure the market is ready to handle these numbers, the policy seeks to establish the impact of adopting e-mobility on the long-term sustainability of the RMLF and have this report published by July 2027. This will be undertaken by the National Treasury and the Kenya Roads Board (KRB). These institutions will also develop alternative financing sources for road maintenance, rehabilitation and development, which should be published by December 2027. The KRB, National Treasury and the Attorney General will be expected to come up with modalities on a phased approach to the implementation of any alternative financing sources for road maintenance, rehabilitation and development. This will be done through Acts of Parliament with a timeline of December 2027. "The government shall develop sustainable alternative financing sources to reduce over-reliance on fuel levy for road maintenance, rehabilitation, and development in light of the increased adoption of e-mobility. (The government shall) apply the 'user pays' principle in the financing of roads maintenance, rehabilitation and development," the policy says. According to the policy, the amount the government is now foregoing due to the adoption of EVs is Sh2.2 billion. This figure is expected to balloon to Sh9.2 billion by 2030 and reach Sh90 billion by 2043. By this period (2043), the number of EVs on the Kenyan roads would be 468,240 compared to 382,340 for ICE automobiles. The document says RMLF revenues will start to fall in the year 2037 and beyond due to a consistent decrease in projected numbers of new ICE registrations in the country. "It might sound a bit far, but 10 years from now, the number of newly registered ICE vehicles will start to decrease," noted Transport Principal Secretary Mohamed Daghar during the launch of the policy. The policy says the number of ICE sales will reach a peak in the country in 2037 and start to drop, while the new EVs registrations will continue to rise until 2042, when the number of new ICE and new EV registrations will be the same. "This transition has critical implications for the road maintenance levy fund, traditionally reliant on fuel taxes from ICE vehicles. As the number of ICE vehicles flattens and declines post-2033, the associated revenue from fuel taxes will decrease, leading to a significant shortfall in the road maintenance fund by 2043," the policy says. The policy notes that while the RMLF Act, enacted in 1993, has worked well, there is still a growing funding gap that is expected to widen. "The causes include a lack of regular indexation of fuel levy rates to inflation, improved vehicle fuel efficiency, a growing backlog of roads that need maintenance, and a rising share of EVs, which are not levied under the RMLF Act," it says. It explains that assuming the EVs will not contribute to fuel taxes, this means that their increasing numbers will not offset the revenue loss from the declining ICE vehicle registrations. "The projection shows a widening shortfall in the RMLF as the number of registered EVs grows. This shortfall is projected to exceed Sh17 billion by 2033 and reach around Sh90 billion in 2043," it says. "The government therefore needs to devise a new Road Fund to offset this anticipated decrease in fuel levy revenues." Budget constraints, brought about by the country's growing debt, have been the driving force behind toll roads through Public Private Partnerships (PPP). This has seen the development of the Nairobi Expressway and the Rironi-Mau Summit, whose construction was recently launched by President William Ruto. However, the push to adopt electric vehicles as the automobile technology for the future will exert more pressure to have more of such roads in use. The argument supporting EVs adoption is also being catapulted by the country's petroleum import bill that Transport CS Chirchir noted as chocking to the Kenyan shilling. Data from the Kenya National Bureau of Statistics shows importers spend Sh623.4 billion in 2022, which is a sharp increase from Sh343.3 billion in 2021. He says this large fuel import bill reflects Kenya's heavy reliance on imported petroleum for transport, industry, power generation and aviation. "This growing expenditure places significant strain on our foreign exchange reserves, undermines energy, security, and exposes our economy to global fuel volatility," he said during the launch of the policy. "It is against this backdrop that electric mobility emerges not merely as an option but as a strategic necessity.

State goes after electric cars as road levy funding dims

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

Similar Articles

New commerce lobby to strengthen Australia-EAC business ties

Technology and green energy powering China's Ningbo Zhoushan Port

Senate puts Kagwe to task over milk shortage

Treasury faces Sh245b refund bill in bungled Safaricom shares sale

DIGGER JOBS

Digger Motors

Digger Real Estate

State goes after electric cars as road levy funding dims

Get Full Access for Ksh299/Week.

Related Topics

Similar Articles

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS