Consumers are yet to enjoy lower cooking gas prices, more than a year after the government scrapped three taxes on liquified petroleum gas (LPG).
The government in July 2023 removed the 8.0 percent VAT, 2.0 percent railway development levy, and 3.5 percent import declaration fees on cooking gas to encourage its consumption.
However, one and a half years since the taxes were scrapped the retail prices of the LPG have remained stubbornly high, even as the consumption of the commodity continues to rise.
Official data from the Kenya National Bureau of Statistics (KNBS) shows that a 13-kilogramme of LPG is retailing at higher prices than in the period when the levies were in place.
In December last year, a 13-kg LPG refill retailed at an average of Sh3,190, compared to Sh3,069 in June 2023.
The prices have stayed high despite the strengthening of the shilling and lower global prices of LPG, a situation that saw the government mull the introduction of a price control system like the one on refined petroleum.
More LPG is being consumed despite the higher retail prices, amid a push by the government for consumers to shift to cleaner cooking fuel even as it launched a Sh3.1 billion project to supply 6,000 boarding schools with cooking gas.
The project to supply boarding schools with LPG started in July last year.
The director-general of the Energy Regulatory Authority (Epra), Daniel Kiptoo, did not respond to an inquiry about the irony of the higher retail prices, despite reduced taxes and lower global prices.
Players in the sector say that, unlike other petroleum products, prices of LPG are determined by market forces.
However, prices of fuel —petrol, diesel and kerosene— are controlled. “It is like lubricants, prices don’t change a lot,” said an LPG industry insider.
Structural challenges in the LPG market include the existence of a single import/export terminal run by African Gas and Oil Company (Agol).
“Agol gives a price, and everybody has to work with it,” said another player in the industry.
The players have also raised issues with ‘illegal’ refillers, with over half of the LPG being sold by these informal entities. There are plans to fix the supply challenges with the construction of a second 30,000-tonne LPG gas storage facility in Dongo Kundu, Mombasa, by Tanzanian-based Taifa Gas.
However, the relief for consumers was short-lived as retail prices started trending upward after two months, owing to higher global prices and a weak shilling for most of 2023.
In the second half of 2024, the shilling strengthened, even as global prices of LPG fell. But the retail prices of cooking gas remained higher than before the government gave the relief.
Demand for LPG, however, remained high, with sales hitting all-time monthly records in the months of July and August, a period when the government began distributing LPG cylinders to boarding schools.
In the first eight months of 2024, consumption of cooking gas rose by 15.4 percent despite a steady increase in the price of the commodity, official data from the KNBS shows.
This marked an increase of 36,350 tonnes compared to total consumption of 234,720 tonnes during the same period in 2023.
Mr Kiptoo, the Epra boss, has in the past attributed the increased consumption of LPG to the government’s policy to promote the use of clean energy. While the burning of cooking gas produces emissions, it is seen as a relatively cleaner source of energy and is key for the energy transition. However, the majority of Kenyans, especially those living in rural areas, cannot afford cooking gas.
High demand for LPG has meant that importers and distributors have continued to cash in, with official data showing that shipment of the commodity into the country has surged.
LPG imports in the third quarter of last year are the highest ever recorded, according to balance of payment data from KNBS.
The data shows that imports of LPG in the three months to September last year rose by 62 percent to Sh10.12 billion. In a similar period in 2023, LPG imports were valued at Sh6.25 billion.
Increased imports of LPG came in a period when the government rolled out the project to distribute clean cooking gas cylinders to 600 boarding schools at an estimated cost of Sh3.165 billion.
The project started on July 1, 2023.
With the schools snapping up the additional cooking gas shipped into the country, supply of the cooking gas in the market remained depressed, explaining the sticky retail prices, analysts have said.