A new study has revealed how a lack of competition in Kenya’s importation of liquefied petroleum gas (LPG) has been costing consumers heavily, with wholesale prices estimated to be about 74 percent higher than they would be if the product was being imported competitively.
The detailed report was presented to the Energy and Petroleum Regulatory Authority (Epra) by two consultants it hired to conduct a study on the cost of service for the LPG and is expected to be a crucial basis for policy review in the way Kenya imports the clean cooking fuel.
Under the current system, importation of LPG into the country has not been competitive, nor has there been regulation to ensure that consumers are protected from high unnecessary costs. The lack of competition, the Epra-hired consultants reckon, has left the playing field unleveled and now gas lands in the country at high prices.
Kenya currently imports LPG for local consumption and export to Uganda, where after landing in Mombasa it is either transported by trucks to customers or other facilities before transportation to customers.
How does this affect the LPG market?
The uncompetitive system in importation of LPG has had various impacts in the country, but the main one has been higher costs.
The increase in prices starts right from shipping and other charges importers claiming after buying the product overseas, which the study now shows are 32 percent higher than comparative markets.
When the product lands in Mombasa at a price 32 percent higher than it would under a competitive importation, importers sell it to wholesalers at a price 74 percent higher than it would cost, and these costs are eventually passed over to households.
The study, for instance, notes that the current Sh159.7/ kilogramme wholesale price of LPG could come down to Sh91.9/ kilogramme if the importation is opened.
What is being proposed?
The consultants have proposed to Epra to implement an Open Tender System (OTS) mode of importation for the LPG. This is a system that has previously been applied on importation of petroleum products.
Under the OTS- which was temporarily shelved for the government-to-government oil importation deal with Saudi-based firms- local oil marketers submitted bids to run fuel importation for at least two months, which raised competition in the sector.
A similar system under LPG importation would see LPG firms compete for slots to import the product and winners import for a specified period, a system that would favour firms that can import the product at low prices.
The consultants have also proposed regulation of LPG across value chains, to have tighter controls in the production and management of gas cylinders, noting that illegal activities in the LPG sector have hindered investment in gas cylinders, which could affect the industry as demand grows.
Why is competitive LPG importation important?
There have been concerns of more households in the country, particularly those dwelling in low-income segments of urban centres sliding back to use of charcoal for cooking, after it became more expensive to prepare meals using the cleaner option.
This poses health and environmental challenges, not only for the households cooking using charcoal, but also a health burden for the government, whose health budget has been growing.
Data on LPG consumption in the country shows that the country had witnessed a steady growth from a consumption of 151,700 tonnes in 2016 to 373,865 tonnes in 2021, but there has been a drop from the trend in 2022 (333,830 tonnes) and last year (360,594 tonnes).
This affects the country’s objective to grow LPG consumption to 15 kilogramme per capita by 2030.
