Queries over McKinsey contract in Kenya's e-mobility transition

 

When President William Ruto drove himself in an electric car from State House to KICC for the closing ceremony of the Youth Africa Climate Change Summit. [PCS, Standard]

A global consulting firm that was accused of hijacking the agenda of the Africa Climate Summit (ACS) last year to include schemes favoured by its fossil fuel clients has been hired to undertake an analysis that will inform the pace at which Kenya will adopt e-mobility. 

The Electric Mobility Taskforce, formed by the Ministry of Transport to look into ways to grow e-mobility in the country, said it has engaged the services of McKinsey to do a cost-benefit study that will inform Kenya’s transition from petrol and diesel power vehicles to electric.

It was claimed that the consulting giant hijacked the Africa Climate Summit held in Nairobi in September last year where it played a lead role and gave prominence to issues such as the carbon market schemes.

Such schemes, critics argued, are unlikely to reduce emissions or help in fighting climate change and only give developed markets license to continue polluting cheaply as well as help some of McKinsey’s biggest clients including global oil and gas majors. 

Despite the controversies at ACS and its role in advancing the interests of oil and gas, McKinsey will now do a cost-benefit analysis on Kenya’s transition to EVs from fossil fuel-powered vehicles.

“While the immediate tax changes required to encourage e-mobility in Kenya will be submitted to the National Treasury and the National Assembly, there is the need for the development of a financial model which will assess the cost-benefit analysis for Kenya to transition over time from Internal Combustion Engine Vehicles (ICEVs) to Electric Vehicles (EVs),” said the e-mobility taskforce chaired by Daniel Ngumy in a letter to Transport Cabinet Secretary Kipchumba Murkomen appraising him of the progress it has made so far.

“A study has been commissioned by the taskforce to be undertaken by McKinsey, funded by the UK Government’s Foreign Commonwealth and Development Office (which) has committed to providing support through the e-mobility taskforce to the completion of the assignment.”

The taskforce was formed in August last year and mandated with the overall objective of developing a National Electric Mobility Policy (the e-mobility policy) to promote the growth and development of e-mobility in Kenya.

It was expected to complete its work within 20 days but this was extended to May 20 this year. 

It has since published the draft e-mobility policy that has since gone through public participation. It said the final version of the e-mobility policy would be handed to the CS Transport by May 20.

The taskforce noted that McKinsey also helped in the review of more than 500 e-mobility policies globally, which was part of the terms of references when it was formed. 

Involving McKinsey in developing e-mobility in Kenya, which is attempting to steer the country away from fossil fuels, could brew another storm as was seen in weeks to the ACS and even months after the summit was concluded.

McKinsey was the lead technical advisor for ACS, which was championed by President William Ruto and aimed at addressing the increasing exposure to climate change and its associated costs, particularly in Africa.

According to the Ministry of Foreign Affairs, the summit served as a platform for African governments to showcase progress, exchange perspectives and begin to converge on common priorities for global discussions.

Civil society organisations had protested McKinsey’s lead role in the forum and even wrote to the President asking him to drop the company due to a conflict of interest.

They noted that the summit had been taken over by consultancies and organisations that were keen to push pro-West agenda rather than advance Africa’s interests on critical climate issues. 

According to an article by the French news agency AFP in December following the summit, McKinsey pushed the fossil fuel agenda at the summit and that a document that it had a leading role in drafting was sharply criticised by several advisors as overplaying the role of carbon markets.

The paper also diverged from long-standing positions of the 54-nation African Group and disregarded top African priorities such as money to help the continent’s economies cope with climate impacts.

McKinsey has been criticised for calling for lower levels of ambition in phasing out use of fossil fuels.

The firm has however responded to the criticism, noting that sustainability is a priority and that it has been helping its clients decarbonise.

Mass transition to electric vehicles could reduce Kenya’s oil import bill. In 2022, the country spent Sh630 billion in importing petroleum products, which was 25 per cent of its total import bill of Sh2.49 trillion, according to data by Kenya National Bureau of Statistics (KNBS).

Other than the unpredictability of the global oil market, currency fluctuations also present a headache. 

While a significant reduction in the amount of money spent in importing fuel could save Kenya billions annually, it is a loss for oil exporters and this loss could be bigger if adoption of EVs is replicated at scale in other countries in the region and even around the world.

It is perhaps the kind of loss that might not augur well for major oil and gas companies. 

The government has in the recent past tried to incentivise Kenyans to transition to electric vehicles through measures such as reducing excise duty on EVs from 20 per cent to 10 per cent and exempting fully electric cars from value added tax (VAT).

It also introduced an e-mobility electricity tariff in April last year that offers EV owners cheaper rates to charge their cars.

According to the Energy and Petroleum Regulatory Authority (Epra), the number of registered electric vehicles increased 250 per cent in the six months to December 2023, raising the number of EVs in the country to 3,753. This was due to the incentives the government implemented.

“During the review period 2,694 electric vehicles were registered, bringing the cumulative number of registered EVs to 3,753,” said Epra in a report covering July to December 2023.

“The increase in registered EVs may be attributed to government initiatives such as the introduction of the e-mobility tariff, and reduction (of taxes).

“As of December 2023, EVs constituted 1.62 per cent of vehicles registered that year, with the country aiming to reach five per cent by 2025, as outlined in the Kenya National Energy Efficiency and Conservation Strategy, 2020.”

The motor industry has been pushing for more incentives including more tax breaks. The e-mobility taskforce said it had made recommendations including tax incentives that it expects will be captured in the Finance Bill 2024 and start implementation in the 2024-25 financial year. 

“The taskforce has finalised its recommendations on immediate tax changes required to encourage the adoption of e-Mobility in Kenya.

“These recommendations will be submitted directly to the National Treasury and National Assembly ahead of the enactment of the Finance Bill 2024,” said the taskforce in the letter to CS Murkomen.