The worst monopolies are in the public sector, not the private sector

Former Kakamega senator Cleophas Malala has been displaying excessive excitement since he was appointed UDA secretary-general. Holding press conferences has become his almost daily activity, where he utters some very combative stuff.

He has been aggressively pushing for parties allied to UDA to fold up and join the outfit. His primary targets are ANC and Ford-Kenya, which are linked to Prime Cabinet Secretary Musalia Mudavadi and Speaker of the National Assembly Moses Wetang’ula, respectively. Malala is acting on a brief, of course. UDA bosses are determined to hold full sway in the Western region, and the two parties stand in the way.

Mudavadi and Wetang’ula have tactfully but firmly swatted the former senator away, both making it clear they won’t dissolve their parties. The ever level-headed Mudavadi has pointed out the priority is not about folding parties but should be to stabilise the sinking economy and deal with the escalating cost of living. Alas, wasn’t that what UDA pledged to do during its campaigns? What has changed?

Malala has also been talking a lot about business monopolies. The problem is that much of what he says is not factual. These so-called monopolies exist only in his mind, and the minds of his party superiors. Recently at a rally in his home county, Malala accused “a certain individual” of monopolising the cooking gas business, and suggested this would no longer be tolerated. He was pointing his finger at Raila Odinga, obviously.

Cooking gas

Other UDA figures have also been harping about a cooking gas “monopoly” that is supposedly controlled by the Odinga family. Similar claims have been made by the Senate’s accomplished heckler, Samson Cherargei.

Let’s clear some facts. One, there’s been a near monopoly in imports of liquefied petroleum gas (LPG) — cooking gas — by a company called Africa Gas and Oil, which so far has the biggest LPG terminal in Kenya. It is owned by Mombasa-based magnate Mohammed Jaffer. However, other firms are entering the scene.

 Two, there’s no monopoly in the local cooking gas distribution chain either. This distribution market is dominated by oil marketing companies — Total, Shell (Vivo), Rubis, Oil Libya, National Oil Corporation and numerous other smaller players. Jaffer is also big in the distribution business through an African Gas subsidiary that sells gas and cylinders under the brand name Pro-Gas.

 Three, Raila doesn’t supply cooking gas. He manufactures gas cylinders through his company, East Africa Spectre. Four, there’s no longer a monopoly in cylinder manufacturing. Today that field is full of competition. Many of the companies are reputable, some not quite (with faulty cylinders that leak). The LPG suppliers buy the cylinders from the manufacturers then brand them as their own with names such as Total Gas, Afrigas, K-gas, SupaGas, Mpishi and so on.

When this government says it will subsidise the cost of a 6kg cylinder and bring the price down to Sh500 by July, that’s fine. Yet cylinder prices are not the problem. You don’t change cylinders every other month. In fact you can stay with one cylinder type for many years.

Distort the market

The actual cost comes in regular refilling. In other words it is the price of the gas itself that most concerns the consumer. Will the government also subsidise imported LPG when it has cancelled the subsidy for petrol? And will all cylinders made in Kenya get subsidised? Or only a favoured few? That will distort the market. A government-subsidised gas project dreamed up in 2016, ‘Gas Yetu’, floundered in controversial circumstances.

Mind you Taifa Gas, one of the largest gas suppliers in Tanzania, has officially been welcomed by the government into the Kenyan market to compete with Africa Gas and Oil on the latter’s turf. It has embarked on the construction of a modern common-user LPG terminal in Mombasa port that will handle imported gas for the Kenyan market and for export to neighbouring countries. An epic battle will soon be underway for the control of the Kenyan gas market.

More often than not, monopolies emerge when they overwhelm less competitive (or less entrenched) rivals. Take the case of Safaricom. It is not exactly a monopoly. It has several competitors in the telco space. However, it has so superseded the competition that the latter are forever petitioning the Communications Authority of Kenya to be given some breather.

Monopolistic control

There are other means a company can employ to gain monopolistic control. Using intellectual property rights, buying up the competition, or hoarding a scarce resource, are all ways for a company to monopolise a market. But the easiest and most uncompetitive way to becoming a monopoly is by the government granting a company exclusive rights to provide goods or services. That’s the curse of many parastatals.

Competition is good. The downside of monopolies is that they quite often lead to price-fixing. The customer suffers. Dominant players have the advantage of exploiting economies of scale to undercut smaller competitors. Or they can form a cartel, like the government energy sector has suddenly become. An ethnic cartel, basically. Look at the leadership at the Energy ministry, the Energy and Petroleum Regulatory Authority, Kenya Pipeline Company, KenGen and Kenya Power Company. The tribalism is becoming quite shameless.

Monopolies that need urgent fixing are those owned by the government. Yes, those parastatals. One such is Kenya Power, which is wildly inefficient and has integrity issues. It charges abnormally high bills but still makes huge losses.

 And its tariffs and levies the customers must pay, including several levies that go to other government agencies, have shot to the roof. It refuses to make public details of the power purchase agreements it has signed with Independent Power Producers.

They are ruinously expensive compared with the low unit cost of electricity the utility buys from Kengen. Because of Kenya Power's opaque manner of doing business, this incompetent company needs to be 100 per cent privatised soonest. Or at any rate opened up to competition. In which case it would then quickly die a natural death.

[email protected]; @Gitau Warigi