Nock’s marketing initiative to boost low-income households

Major Liquefied Petroleum Gas (LPG) marketers have correctly complained about the presence in the market of unlicensed LPG fillers who have set shop in mainly lower income residential areas.

The reality is that the “illicit” marketers may be fulfilling a market distribution void in the lower income areas where major oil companies have mostly ignored.
This void should suggest the existence of a big business opportunity waiting to be exploited with new and creative marketing initiatives.

That is why when the National Oil Corporation recently announced that it will introduce mobile LPG filling equipment that can vend as little as one kilogramme of gas, it became apparent that at long last a marketer was targeting a largely ignored consumer segment.

Informal suppliers

This initiative will be diluting activities of the unlicensed and informal LPG market which is viewed as not meeting basic safety and measurement standards. The initiative by the National Oil is likely to prompt other marketers to proactively unlock this latent LPG demand that may eventually give us the critical mass needed in the LPG market.

The mobile LPG filling initiative will improve reach through portability, availability and affordability to a section of low-income population with limited money to sustain purchases of a full 13-kilogramme or six- kilogramme cylinders.

Perhaps this initiative should be accompanied by a parallel effort to promote the smaller three-kilogramme cylinder which more easily fits the new mobile vending initiative.

I cannot comment on how conventional or otherwise the new mobile LPG filling operation is from safety standards.

The sector regulator should ensure that any new LPG marketing initiatives meet such standards, or establish new ones to support such initiatives.

Turning attention to the higher income households , LPG marketers may need to focus on the new marketing opportunities offered by the rapidly growing “gated communities” who can be serviced from centrally-located bulk LPG tanks with reticulated piping systems to each household served with a meter.

But this has to be planned at the estate design and development stage for correct and safe piping and equipment installation. In the 1990s,a pioneer gated community estate in Riverside area installed a reticulated LPG system, but I am not sure how far it finally evolved.

The Government has two policy guidelines that target increased LPG consumption.

The first one is environmental and targets reduced use of biomass (firewood and charcoal) with a view to increasing national forest cover from the current 1.7 per cent to a target of 10 per cent

Increased vegetation absorbs carbon dioxide and reduces climate change impacts.

Reliance on biomass fuels currently stands at about 68 per cent of total national primary energy.

The other health driven policy is to make Kenya a “kerosene free” country.

Kerosene smoke causes indoor air pollution as it contains harmful particulate matters that cause respiratory illnesses.

These pollutants are more pronounced in rural and peri-urban dwellings which have inadequate ventilation.

To support the above policy objectives, EAC countries have broadly agreed on fiscal measures to remove taxes on LPG product and cylinders. Whereas a number of regional countries (including Kenya) have removed taxes on LPG, only Rwanda has so far removed taxes on LPG cylinders and appliances.

From a “green” point of view, any energy initiative that demonstrably replaces biomass fuels (firewood and charcoal ) should have no problem in qualifying for carbon credits in the global markets .

Initiatives to increase LPG access to lower income households can be justified and registered as carbon projects so as to qualify for carbon credits.

But any policy, strategy or initiative to increase LPG usage in Kenya can only make sense if LPG is readily available in the market, which is not the case today. LPG demand in the country is currently supply constrained as need outstrips supply.

Market penetration

Kenya consumes about 105,000 tonnes of LPG annually which is equal to a per capita consumption of 2.5 kilogrammes per person. Comparable per capita consumption data for sub-Saharan Africa countries indicate that Kenya is way behind in LPG market penetration. Senegal has a per capita consumption of 10 kilogrammes, Ivory Coast nine kilogrammes, South Africa six and Ghana five kilogrammes.

In these countries, government-driven policies and strategies support increased availability and affordability of LPG

About 30 per cent of Kenya LPG supply is from the local Mombasa refinery with the balance coming from imports which are currently hampered by insufficient import handling capacity.

A number of investments (ongoing and proposed ) will increase LPG supply and significantly reduce the supply unit costs.

An ongoing private LPG import facility is expected to be completed in 2012, and this will significantly remove LPG imports bottlenecks thus increasing availability.

The proposed upgrade of Mombasa refinery will also increase LPG production from its new residue cracking facilities .

The new refinery planned in Uganda will also produce LPG which will be surplus to Ugandan requirements and which may become an alternative cheaper source for Kenya.

Until the above investments are completed, we shall continue to face routine LPG outages, especially when there are spot upsets in the supply chain.

With LPG supply bottlenecks, any specific initiative to improve LPG usage across the country will not make significant impacts.

Mr Wachira is the director, Petroleum Focus Consultants
[email protected]