Kenya will start importing liquefied petroleum gas (LPG) through the bulk competitive tender in the push to cut the cost of 13-kilogramme cooking gas by up to Sh881.
The Cabinet Tuesday approved the shipment of cooking gas via an open tender system (OTS), where local companies bid for imports, with the lowest bidder or the winner supplying the industry.
A lack of bidding for the LPG imports has left the product to land in Mombasa at prices higher than prevailing market rates, according to a recent government-backed report.
The report indicated Kenya households could pay Sh2,400 for the 13-kg cooking gas that is currently retailing at Sh3,200 through the use of OTS.
“The Cabinet meeting also approved the procurement of liquefied petroleum gas, heavy fuel oil, and bitumen through a centrally coordinated bulk procurement system,” read a dispatch from a Cabinet session Tuesday.
Cheaper gas
Currently, LPG importation is done by a few players without bidding, a system Kurrent Technologies Ltd and Channoil Consulting Ltd hired by the energy regulator—says has triggered costly cooking gas.
This has dimmed the use of gas and upped consumption of charcoal as more LPG traders increasingly shun Mombasa and turn to Dar es Salaam for cheaper cooking gas.
The OTS had been used to import fuel products like petrol and diesel until March last year when Kenya temporarily switched to a government-to-government deal in which Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company in March last year fed the country with products.
While a kilo of LPG would land at Mombasa at Sh87 under a competitive importation process, the product is currently landing at Sh135.3, the report on the cost of service in the supply of petroleum products in Kenya shows.
After landing in Mombasa, other shipment and gas handling costs pushed the wholesale price to Sh159.7 for a kilo, a price that would come down to Sh91.9 per kilogramme if the importation window was open to all players for bidding.
The draft report to the Energy and Petroleum Regulatory Authority (Epra) noted that while a tonne of LPG is landing in Mombasa at $1,002.4, the cost would come down up to $685.4 under OTS, which requires infrastructure upgrades at the Mombasa port.
The two companies noted that due to the high prices in Mombasa, some Kenyan traders have been sourcing LPG from Tanzania even as thousands of households turn to charcoal to avoid costly cooking gas.
The consultants advised Epra to adopt the OTS system for importation of LPG, which would open up the market for competition and bring down prices.
Under the OTS—which had been used for petroleum product imports—oil marketing companies compete for the tender to import fuel over a period of time, which attracts competitive prices as they bid for the tender.
The report notes that under OTS, LPG wholesale prices would drop by between 30 and 114 percent.
