Why Kenyans are paying dearly for cooking gas

So deep-pocketed and well-connected is the monopoly that controls imports of liquefied petroleum gas (LPG) that no new player seeking to enter the industry gets past endless government bureaucracy, Petroleum and Mining Principal Secretary Andrew Kamau told lawmakers last month.

 The sabotage by government regulatory agencies in granting the necessary approvals for setting up large-scale LPG storage facilities is so significant, he said, that he knows only one firm that has recently received an environmental impact clean bill of health from the watchdog Nema.

Mr Kamau appeared before the National Assembly’s Finance and Planning Committee to explain the sharp increase in fuel prices in the last review.

 “I know of six foreign companies that have for long wanted to come to invest in the country in LPG and build storage facilities but they cannot even get past Nema,” he told lawmakers.

“The only company that has so far managed to get approval from Nema is Oilibya (now Ola Energy) but it’s still yet to get approval from other regulatory agencies.”

 A day before, the energy regulator had revealed to MPs that the bulk of the cooking gas used in Kenya comes via Tanzania through the ports of Dar es Salaam and Mombasa.

 Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo said that much of the gas consumed in Kenya is supplied by one investor, adding that the landed cost of LPG in Dar is $830 (Sh913,000) per tonne and $960 (Sh105,600) in Mombasa.

LPG consumption

 This means that cooking gas is imported at about Sh91 per kilogram or Sh547 per 6kg cylinder. But the cylinder retailed for about Sh950 before the introduction of the 16 per cent Value Added Tax (VAT) on the product, a cool Sh403 margin on a single cylinder.

 An Epra report shows local LPG consumption has grown exponentially from 77,000 tonnes in 2007 to 400,000 though a large section of the population is yet to be tapped – 55.1 per cent of Kenyans use firewood for cooking. 

 But the government maintains that it is too soon to regulate LPG prices - as is the case with petrol, diesel and kerosene - arguing that setting price controls for the product will inhibit investment in the sector.

 “The (LPG) terminal in Mombasa was opened in 2012 and it was a purely private investment. We are yet to reach a point where the government has to step in and put price controls on LPG because this will deter investors from coming into the sector,” Mr Kiptoo said.

“To start regulating LPG we would have to bring its importation into the Open Tender System (OTS) framework and build a common user facility.”

Africa Gas and Oil Ltd (AGOL) owns the Sh12.5 billion, 10,000 tonne LPG storage facility that handles more than 90 per cent of the imported LPG, with smaller players paying to use it, while the government-owned Shimanzi Oil Terminal has a 1,400-tonne capacity. 

 MPs wondered why the government has not built a State-owned common user storage facility for LPG, leaving consumers heaving under high cooking gas prices set by the monopoly.

“Why have you allowed this monopoly to continue setting LPG prices... Why can’t the government set a maximum price for LPG as is the case with fuel?” posed Luanda MP Chris Omulele.

 100,000 tonnes

The government says the $500 million (Sh55 billion) Kipevu Oil Terminal II is slated to be completed in December, with a line for discharge of LPG, and that will increase its stake in the cooking gas market and help reduce prices.

 “We will complete construction of a holding facility for LPG by the end of the financial year that will help new players to enter the market and will help to reduce the prices of LPG,” Kenya Pipeline Company Managing Director Macharia Irungu told MPs.

 But AGOL further raised its stake in the market last year through a massive multibillion-shilling upgrade of its own storage facilities to 25,000 tonnes, enabling it to handle up to 100,000 tonnes per month. 

 The upgrade made it the largest terminal in sub-Saharan Africa, further extending the company’s position at the apex of the LPG sector in Kenya.

 Kenyans continue to feel the pinch of steep cooking gas prices with outlets charging Sh3000 to refill a 13kg cylinder.

 Some said the price to refill a 13kg cylinder from one of the major brands had hit Sh3,800 in Busia County.

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