Regulator mulls price caps to tame cooking gas cartels
The Energy Regulatory Commission will introduce caps on cooking gas prices once a new import handling facility is completed early 2012.
The move will specifically target middlemen whose activities have nearly doubled the price of liquefied petroleum gas (LPG) since the beginning of the year.
The cooking gas cartels have insisted that increased demand and lack of adequate storage capacity is to blame for the price increases that have forced many households to turn to alternative energy sources .
Speculation in the commodity has also been suspected as oil marketers are keen to make up on revenues lost from the controls on petrol, diesel and kerosene introduced last year.
“The suggestion to control LPG prices has been floated before. If it becomes necessary we will bring LPG under the fold of controlled products once the new storage terminal becomes operational,” ERC director general Kaburu Mwirichia said.
The terminal being built by African Gas and Oil in Mombasa will handle 14,000 tonnes of LPG, easing supply problems.
It will cost Sh12.5 billion and is due for completion in March next year. Mr Mwirichia said price caps would be introduced if the facility fails to normalise prices - which oil marketers have continuously blamed on supply chain challenges.
“Healthy competition that would stabilise prices is currently being overshadowed by the supply problems,” he added.
A 13kg cylinder is now retailing at an average of Sh4, 200 at some outlets, up from Sh2,200 in January amid frequent stock-outs from petrol stations, leaving consumers at the mercy of middlemen who mop up any new stock and add mark ups of up to 40 per cent above the recommended retail price.
“We could start controlling prices if the improved supply fails to stabilise prices,” Mr Mwirichia said.
Kenya National Bureau of Statistics data indicates that the average price of a 13kg cylinder retailed at Sh2,451.66 in September, compared to Sh1,986.04 in September last year.
However, the market prices are way beyond this with prices at supermarkets and other dealers being even higher.
The proposal to regulate the gas sector is likely to be met with mixed reactions given that the caps on kerosene, diesel and petrol have failed to push prices down. “This would be a populist way of dealing with the pricing issue and an admission by the administrator that they lack capacity to contain the real problems, which include fuel capacity issues, cartels and hoarding,” said Mr Stephen Mutoro, secretary-general of the Consumer Federation of Kenya.
Prices of petrol, diesel and kerosene went up by Sh3.63, Sh3.36 and Sh4.92 respectively last month after which some Members of Parliament and independent oil marketers called for disbanding of the commission.
Oil marketers have for a long time complained about infrastructure and capacity problems along the supply chain right from the port of Mombasa that cause delays in delivery of supplies, raising retail prices.
“The available storage space at the port is such that only small ships of about two metric tonnes can dock and offload, a process that can take up to two months to complete,” said a leading oil marketer who requested not to be named.
“The owner of the ship has to be compensated for the time spent out of business and this extra cost is obviously passed on to the consumer,” he added.
Consumers are grappling with reduced purchasing power due to rising cost of living with inflation standing at 19.72 per cent. Others have blamed the volatility of the shilling arguing that since purchases are made in foreign currency, which has lost value in past months, the additional costs are eventually passed on to the consumers.
“The whole industry is having a gas supply issue, but we have not increased our prices,” said OiLibya sales and marketing manager Millicent Onyonyi.
Jimmy Mugerwa of Shell Kenya said a ship that docked at the weekend is expected to ease supply pressures. The firm had earlier said its stations had run out of cooking gas after its cargo of 2,600 tonnes was denied entry into the country after failing to meet Kenya Bureau of Standards (Kebs) safety benchmarks.
Offering some respite to low-end buyers, The National Oil Corporation recently introduced a mini-filling mobile stations that will enable filling of gas in amounts of as low as one kilogramme.
This is a shift from the norm where standard cylinders are three, six, 13 and 50 kilogrammes respectively.
The mobile LPG filling initiative will improve reach through portability, availability and affordability to a section of the low-income population with limited money to sustain purchases of full 13-kilogramme or six- kilogramme cylinders.
The oil firm is hoping to widen access to the poor rural and urban households who are currently restricted by the current high costs of standard cooking packages. Now, focus is expected to shift to the African Gas and Oil facility, which government says is expected to cut the time ships take to offload their cargo to 2 weeks and which the ERC has now said it will use to feel the pulse of the industry.
“With a short time between ships docking and offloading this is expected to result in increased gas consumption since demand is their as well as lowering prices,” said Energy Assistant Minister Mohamed Muhamud.
If the move to control gas prices comes to pass, it will join a growing list of regulated items after President Kibaki recently accented to the Price Control Act. The law allows the Finance minister to occasionally regulate the prices of essential commodities.
This was meant to secure their availability at reasonable prices, but a move that goes against the notion of Kenya being a free enterprise economy. ,Analysts now say that this trend reveals a government walking a tight-rope and juggling between protecting the common citizen from exploitative cartels while at the same time maintaining investor confidence.
According to the Economic Survey of 2011, demand for the product increased to 87,800 tonnes last year from 64,600 tonnes in 2006. Current consumption of has increased to 90,000 tonnes per year with the bulk production from the sole refinery and the balance met through complementary imports.
However, it is still lagging behind other African countries in terms of penetration with LPG demand in the country currently being supply constrained as need outstrips supply.
A 2010 study by the Kenya Institute for Public Policy Analysis and Research showed that two per cent of households use LPG for lighting, 10 per cent for cooking, and six per cent for heating.
