Nigerian oil marketing company Asharami Synergy is in talks with Kenya Pipeline Company (KPC) to fund a Sh17.7 billion cooking gas imports handling facility in Mombasa that upon completion will allow the government to regulate prices of the commodity.
Sources told the Business Daily that the talks led by senior officials in the Ministry of Energy and Petroleum are expected to be concluded by the end of this month, paving the way for the start of the construction of the liquefied petroleum gas (LPG) facility in Changamwe.
“Contract negotiation led by the Ministry of Energy and Petroleum is ongoing. We hope that it will be completed by the end of this month,” a senior official familiar with the matter said without providing details.
It is also not clear whether Asharami will fully or partially fund the construction of the facility and whether it will acquire a stake.
Energy and Petroleum Cabinet Secretary Opiyo Wandayi did not respond to questions on the ongoing talks between Asharami and the government over the cooking gas facility.
Financing such projects is normally done through the purchase of a stake as a form of strategic investment or entering into a build-operate-transfer (BOT) contract as a public-private partnership.
Under a BOT contract, an entity — normally a government — grants a concession to a private company to finance, build, and operate a project for some time (typically 20 or 30 years) to recoup its investment, then transfers control of the project back to the public entity.
Asharami Synergy –which is part of Sahara Group Company— has interests in procurement, warehousing, inbound and outbound logistics, marketing, distribution, retailing, and sale of petroleum products across Nigeria and Africa, including Kenya.
The planned LPG plant is expected to have a capacity of 30,000 metric tonnes and will allow the government to bring importation of cooking gas under the open tender system (OTS) and ultimately control its prices.
Improved access to affordable cooking gas is part of President William Ruto’s Bottom-Up Economic Transformation Agenda. Kenya is keen to grow the use of LPG as the number one fuel for cooking, a target which is hinged on bringing prices of the commodity under government control to protect consumers from price manipulation.
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 (KOT-2) jetty.
KPC contracted giant Pakistani firm Petrochem Engineering Services to design the LPG import and storage facility in Changamwe.
The facility, once completed, will accelerate the loading of cooking gas for distribution by trucks which will help to cut demurrage costs.
KPC projects that faster loading will 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’s move to build a common-user facility for handling cooking gas imports comes amid the increasing use of LPG. Official data shows that consumption in the eight months to August this year grew 15.5 percent to 271.07 tonnes from 234.72 tonnes in the same period last year.
The government is banking on KPC’s common-user facility for LPG to bring importation of cooking gas under the OTS as happens for petrol, diesel, and kerosene.
A shift to OTS will see the importation of LPG awarded to the cheapest oil marketer, with the benefits being passed to consumers. This will also compel oil marketers and other dealers to sell the commodity at the prices set by the government.
Regulating prices of cooking gas will see the State protect consumers from manipulation. Importers currently determine prices and have denied consumers the reliefs anticipated from tax cuts, a strengthening shilling, and falling prices globally.
The 13-kilogramme cooking gas cost Sh3,147 last month compared to Sh3,031 a year ago. The price increase came despite the removal of the 8.0 percent value added tax, 3.5 percent import declaration levy, and 2.0 percent railway development levy.
The tax cuts were expected to be passed on to consumers in the form of reduced prices, but the opposite has happened.
This facility will be the first publicly-owned berth for handling cooking gas imports and will open up a market currently in the tight grip of the African Gas and Oil Company (AGOL), which is owned by Mombasa-based tycoon Mohammed Jaffer.
