Treasury gives Sh461m for cooking gas plant in price cut push

liquid petroleum gas cylinder

Retailers selling liquefied petroleum gas (LPG). Improved access to affordable cooking gas is part of President William Ruto's Bottom Bottom-Up Economic Transformation Agenda.

Photo credit: File | Nation Media Group

The Treasury has allocated Sh538.68 million towards an ambitious liquefied petroleum gas (LPG) distribution project.

The amount assigned to the Petroleum ministry for the new financial year starting July includes Sh461.63 million for the purchase of a specialised plant and equipment.

The disclosure by the Treasury comes as the State cranked up preparations for the construction of a 30,000-metric tonne LPG handling and storage facility in Changamwe, Mombasa County by Kenya Pipeline Company (KPC).

Improved access to affordable cooking gas is part of President William Ruto's Bottom Bottom-Up Economic Transformation Agenda (BETA).

The Finance Bill 2023 proposes to exempt LPG from value-added-tax (VAT), Import Declaration Fees (IDF), and Railway Development Levy (RDL)—a move that would significantly make cooking gas affordable to Kenyans and ease pressure on the forest cover by limiting the felling of trees for charcoal burning and firewood.

Cooking gas is currently subjected to taxes at the rates of eight percent VAT, Import Declaration Fees, and Railway Development Levy.

A VAT exemption on LPG would be a buildup on gains from the Finance Act 2022, which cut the tax charged on cooking gas by half, handing consumers a major relief amid rising global prices of the commodity and other oil products.

The Finance Act 2022 cut the tax on LPG supplies from 16 percent to eight percent. LPG was among petroleum products whose prices hit the roof last year on global dynamics—triggering an 80-per cent jump in Kenya's total petroleum products import bill last year and squeezing consumers.

A regulatory filing to the National Environment Management Authority (Nema) shows that the planned Changamwe facility will mainly receive supplies from pressurised LPG ships berthed at the Sh42 billion newly constructed Kipevu Oil Terminal 2 jetty using a pipeline being constructed from Common User Manifold located next to the KPC installation.

KPC has contracted a Pakistani firm — Petrochem Engineering Services to design LPG import and storage facility in Changamwe as five private companies apply to tap into the new Kipevu Oil Terminal 2.

The facility in Mombasa once completed will accelerate the loading of cooking gas for distribution by trucks which will help to cut demurrage costs.

KPC says faster loading is expected to translate to lower prices for LPG by 30 percent once operational as oil marketing companies pass the benefits of reduced demurrage costs to consumers.

"KPC proposes to install, commission, and operate a 500 tonnes per day LPG truck loading facility, which will enhance product evacuation and as such ease ullage constraints and subsequently reduce demurrage costs. Current LPG storage capacity in Mombasa is limited and huge demurrage is incurred by LPG ships, affecting the final consumer price of bottled gas," read part of KPC in tender documents.

Kenyan households had, since June 2016, enjoyed low cooking gas prices after the Treasury scrapped the tax on LPG to cut costs and boost uptake among the poor who rely on dirty kerosene and charcoal for cooking.

Parliament, however, reinstated a 16 percent VAT on cooking gas in 2021, which, together with the rally in crude prices, saw the prices of the commodity shoot up significantly before the interventions in the Finance Act 2022.