VAT pushes cost of cooking gas to two-year high

The price of cooking gas has hit a two-year high of Sh3,000 per 13-kilogramme cylinder following introduction of VAT on the fuel, adding budget pressures on households that are already grappling with rising cost of food and tuition fees.

The latest Kenya National Bureau of Statistics (KNBS) price indices report shows gas prices have jumped 14 per cent in the past one year, outpacing other home energy sources such as kerosene, electricity and charcoal.

The last time gas prices rose to this level was in January 2012 when they touched Sh3,149 per 13-kg cylinder.

Mr George Wachira, a consultant at Petroleum Focus, said that in addition to the re-introduction of Value Added Tax (VAT) on cooking gas last year, the closure of the Mombasa oil refinery has also contributed to the increase in price.

“With closure of Mombasa refinery the fraction (about 40 per cent) of LPG that was coming from crude oil refining now has to come from more expensive refined imports,” said Mr Wachira.

The East African Community had agreed in 2005 to remove VAT on liquefied petroleum gas (LPG) in all member countries as a way of curbing use of firewood and charcoal and helping to increase forest cover.

READ: Cooking gas dealers warn VAT will slow conservation efforts

The Premier Gas general manager Andrew Omollo had said in August last year that the cost paid by consumers for gas was likely to go up once VAT was imposed on the fuel.

The KNBS data shows that the price of the 13kg cylinder of gas averaged Sh2,630.73 in January 2013, going up to an average of Sh2,995.22 a year later.

Over the one year period, the KNBS data shows the price of kerosene went up by 2.78 per cent to average Sh85.81.

Electricity cost per 50 kilowatt hours in January 2013 was Sh568, falling by 7.27 per cent the next one year to stand at Sh526.70 in January 2013.

Only charcoal went up by a margin close to that of gas, with KNBS showing that the price of a four-kilogramme tin increased by nine per cent to Sh72.80 on average between January 2013 and January 2014.

The rise in cooking fuel prices meant that between January 2013 and January 2014, the housing, water, electricity, gas and other fuels’ index, increased by 4.82 per cent.

The Energy Regulatory Commission (ERC) says that it’s monitoring the gas prices, and is ready to step in and regulate the rise if there is need to do so.

ERC director in charge of petroleum, Linus Gitonga, said that current prices of the commodity are cost reflective; adding that introducing a price control mechanism like that applied to petrol, diesel and kerosene remains a policy decision to be made by the Energy ministry.

“If directed so we shall be ready to implement it. We shall advise the government if need be on such price controls. We feel the price is cost reflective,” said Mr Gitonga.

Mr Wachira also held that introducing a price control mechanism will not help to control LPG prices, saying that there is enough and good competition in the market that helps to keep a check on pricing.

The commissioning of a new LPG imports storage facility in Mombasa is seen as likely to bring down and stabilise the cost of gas due to improved economies of scale in import costs.

The privately owned Sh12.5 billion bulk off-shore depot has a storage capacity of 14,000 metric tonnes, compared to the older import terminal at Shimanzi in Mombasa which has a capacity of just 1,400 metric tonnes.

According to Mr Gitonga, the commissioning testing on the facility is done, and what is pending are the commercial aspects, procedures and rates to be paid by marketers using the facility.

In 2012, demand for gas stood at 93,600 tonnes, up from 91,600 tonnes in 2011 and 84,400 tonnes in 2008.