Economy

Treasury revives LPG subsidy plan

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People walking past the National Treasury building in Nairobi city centre. PHOTO | EVANS HABIL | NMG

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Summary

  • The cooking gas subsidy scheme initiated by the Energy ministry during the 2016/2017 financial year was aimed at cutting reliance on environment-unfriendly kerosene and charcoal, which are the main source of fuel for most rural and urban poor households.
  • The plan to revive the subsidy comes in a period cooking gas has been retailing at six-year highs after the Treasury reintroduced a 16 percent value-added tax (VAT) on the commodity on July 1.

The Treasury has signalled a revival of the stalled subsidy scheme for affordable cooking gas, with the inclusion in the draft budget of a plan to distribute 300,000 six-kilogramme LPG cylinders to low-income households in the next three years.

The cooking gas subsidy scheme initiated by the Energy ministry during the 2016/2017 financial year was aimed at cutting reliance on environment-unfriendly kerosene and charcoal, which are the main source of fuel for most rural and urban poor households.

Its implementation was hampered by some suppliers providing faulty cylinders and distribution challenges at the State-owned National Oil Corporation (Nock), which was to drive the programme.

The draft Budget Statement for the 2022/2023 fiscal year now shows that the Treasury expects to fund the supply of at least 300,000 cylinders, which is, however, only a small percentage of the target of four million that was outlined in the initial plan.

“Over the next three fiscal years, the government will strengthen enforcement and operationalisation of provisions of the Mining Act 2016, the Petroleum Act, 2019 and other extractive policies for well-coordinated oil, gas and mining sub-sectors; (and) distribution of 300,000 – six kg LPG cylinders to low-income households,” said the Treasury.

The plan to revive the subsidy comes in a period cooking gas has been retailing at six-year highs after the Treasury reintroduced a 16 percent value-added tax (VAT) on the commodity on July 1.

Households are paying at least Sh350 more for the 13-kilogramme cooking gas from pre-VAT levels to retail at Sh2,600 on average — a price level last seen in March 2015.

Kenya has been trying for years to reduce the use of dirty fuel in homes on concerns over the degradation of forest cover and health problems related to use of kerosene for cooking and lighting.

Under a Sh3 billion plan, the State planned to distribute the cylinders and burners at a subsidised price of Sh2,000, with refills costing Sh840.

The retail price for a filled cylinder and accessories is currently about Sh5,200, meaning that if the government were to stick to the original pricing plan for its cylinders, consumers would enjoy a discount of 62 percent.

Nock piloted the project from October 2016 in Machakos and Kajiado counties but it later came into difficulties after the state audit office found that some Sh870 million had been spent with no value to taxpayers.

It also emerged that fraudulent contractors supplied 67,251 faulty gas cylinders, out of more than 200,000 that were delivered.

The audit showed that 10 firms had been contracted by the ministry in May 2017 to supply various components of the LPG gas project at an aggregate cost of Sh1 billion.

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