Kenya on the spot over tender for cheap cooking gas to private firm
Sunday December 23 2018
The Kenyan government is on the spot for ceding the importation of liquefied petroleum gas to a private company, something that has made efforts to make cooking gas affordable and accessible to the majority come to naught.
Despite implementing fiscal policies, subsiding cylinders and going to the extent of launching a cooking gas programme to make gas affordable to the common man, industry players contend that ceding the bulk importation of LPG to Africa Gas and Oil Ltd has denied the country the benefits of cheap cooking gas.
Africa Gas, which is partly controlled by business mogul Mohamed Jaffer who is also the owner of Grain Bulk Handlers, imports 90 per cent of the LPG consumed in Kenya and also controls a significant transit market to neighbouring countries.
The remaining 10 per cent is brought to the country by smaller shipments that discharged into oil marketing companies terminals located at both the Shimanzi Oil Terminal and at Mbaraki Jetty.
After taking control of bulk importation, now Africa Gas wants to tighten its grip on the LPG market after establishing a gas cylinder manufacturing plant and is also mulling over plans to enter into the retail market to compete with oil marketing companies.
“Africa Gas Ltd has a monopolistic grip on the LPG market because it owns bulk import and storage facilities. This has denied Kenyans the benefits of cheap cooking gas,” said an industry player on condition of anonymity.
The fact that Kenyans are not significantly benefiting in terms of cooking gas retail prices is evident considering that despite a significant decline in prices at the international market, locally the prices have remained largely unchanged.
At the international market, the prices of LPG declined from $580 per tonne in January to $445 per tonne in December for propane while those of butane declined from $570 per tonne to $415 per tonne during the same period.
Surprisingly in Kenya retail prices have remained high with the cost of refilling a 13-kg gas cylinder rising to an average of $21.2 in September from $20.1 in June according to official data.
Africa Gas’s LPG imports infrastructure currently consists of a 30,000 tonnes of offshore import and storage capacity with a 375 tonnes onshore service storage capacity.
The company is also expanding the imports storage facility by an additional 20,000 tonnes, a project that is slated for completion by end of next year after which it intends to embark on an additional 30,000 tonnes onshore storage project.
The EastAfrican has learnt that the control of Africa Gas on bulk LPG importation has been a matter of concern in the petroleum industry, which has prompted the government to compel Kenya Pipeline Company to invest in a common user facility.
That a private company controls bulk importation has made it impossible for Kenya to introduce price controls on cooking gas similar to those introduced on diesel, petrol and kerosene costs in 2010.
In April, KPC said it will invest $125 million to construct a 20,000-tonne common user import storage facility.
The facility will be located at the Kenya Petroleum Refinery and will be connected to the new Kipevu Oil Terminal, making it easy for large vessels to dock and discharge cargo fast enough to save the country from demurrage costs.
The facility, which is planned for completion in 2020, will enhance the LPG supply, distribution and storage infrastructure and increase the use of the clean energy.
However, and most importantly, its completion will enable the government take over the control of bulk LPG importation from the grip of Africa Gas because it will make it possible for oil marketers to compete in the importation.
A report by consultancy firm Kurrent Technologies conducted on behalf of the Energy Regulatory Commission reckons that Kenya must implement the open tender system in LPG importation to make LPG more affordable and accessible.
Although Kenya has abolished value added tax on cooking gas and subsidised the cost of the 6 kg cylinders to spur growth of LPG usage, majority of Kenyans still depend on charcoal, firewood and kerosene.
Kenya also introduced a multimillion-dollar project dubbed Mwananchi Gas project that was designed to provide poor households with cheap cooking gas.
It, however collapsed due to allegations of corruption, lack of funds and supply of defective cylinders that pose safety risks to users.
LPG consumption in Kenya has been on the rise, with monthly consumption ranging from 15,000 to 23,750 tonnes according to the ERC.