Last week, it was reported that International Finance Corporation (IFC) are providing 20per cent equity financing to a new local Liquefied Petroleum Gas (LPG) company which is targeting LPG dispensing to the lower income households .
IFC is the World Bank affiliate that lends to the private sector.
It reminded me of when IFC bought 25per cent shareholding in Equity Bank in the mid 2000s, motivated probably by need to facilitate the bank to access and empower previously under-banked lower income Kenyans, an objective that appears to have been achieved.
The similarity in the two IFC financing cases is in reaching out to lower income groups previously ignored by mainstream oil companies and banks.
In the case of LPG, probably the policy drivers for the IFC funding are environmental, health, and need to uplift quality of life. Conservation of national forest cover by substituting use of firewood and charcoal with LPG is a common policy objective across Africa.
Use of cooking gas to replace kerosene (and firewood) for domestic cooking reduces respiratory ailments. Cooking gas is a clean and relatively green fuel.
The new LPG marketer intends to dispense affordable small portions of gas direct to consumer receptacles using mobile filling equipment.
Direct dispensing of cooking gas is an innovative and a game changing LPG marketing concept whose time has come.
However the concept can go awfully wrong, and result in unintended consequences if allowed to proceed without sufficient regulatory safety provisions. LPG is about the most dangerous petroleum product due to its pressurised existence.
It has huge capacity for devastating fires and explosions. The recent LPG incident in Nyeri County where several persons lost their lives is a reminder of how dangerous LPG can be if handled unsafely.
I presume that the Energy Regulatory Commission has already technically reviewed and licensed this new mode of LPG dispensing.
The Kenya Bureau of Standards will need to develop appropriate technical standards for the proposed mobile LPG dispensing equipment and cylinders, plus operating code of practice.
NEMA and the Department of Occupational Safety and Health will also need to sufficiently assess potential impacts of LPG mobile filling premises.
Weights and Measures Department will need to audit the new LPG dispensing procedures and equipment to ensure that unscrupulous traders shall not cheat consumers on quantities dispensed and paid for.
In respect of fair trade practices, it would be inappropriate, and indeed illegal, if any direct dispensing of LPG is done into branded cylinders belonging to third party competitor marketers.
Last week it was reported that Kenya Pipeline Company (KPC) will develop common user LPG storage and filling infrastructure in the main demand centres of Nairobi, Kisumu, Nakuru, Eldoret and Sagana.
I presume Sagana was chosen because of its central location that connects to majority of counties in the Mt Kenya region.
It is also understood that the long awaited common user Mombasa LPG import facilities developed by a private investor will be ready in a few months time. These facilities will increase availability of imported LPG at lower costs.
The new LPG import and distribution facilities will encourage increased market participation and competition.
These facilities, plus the new retailing practices, will directionally unlock national LPG demand enough to move per capita LPG consumption in Kenya to levels that will make a major impact on domestic energy mix.
Currently per capita LPG consumption in Kenya is about 2.0.Kg per person which is low compared with Senegal (10 Kg), South Africa (6 Kg) and Ghana (5 Kg).
Tax-exempt
Last week it was reported that LPG is in the list of tax exempt items that will soon revert to VAT payments.
Cooking gas was zero-rated in 2005 in fulfillment of what we understood to be a collective EAC decision to promote LPG demand for environmental reasons.
It is understood that a subsequent EAC decision recommended removal of taxes on LPG cylinders and appliances for the same reasons.
There is need to align any planned fiscal measures on LPG with the wider EAC policies to promote LPG demand to achieve forest cover protection objectives.
Not only should LPG in Kenya remain tax-exempt, but considerations should also be made to implement tax free cylinders and appliances.
So far, only Rwanda has implemented removal of taxes from both the cooking gas and cylinders/appliances, driven by need to achieve early results on forest cover protection.
Socially, LPG has an aspirational value as lower income households mostly aspire to graduate from use of kerosene and charcoal to LPG.
For the middle and upper income groups, and especially those residing in houses never designed for kerosene or charcoal use, LPG is a must fuel. Electricity, as an alternative for domestic cooking is not an option due to its high costs.
Also incremental supply of electricity is from higher carbon thermal generation which we are directionally reducing.
Going forward, making LPG available and affordable is a socio-economic priority that also supports environmental and health objectives.
Creating sufficient LPG distribution and marketing systems that reach all the counties is an effort which should be supported.
However, as we increase LPG demand let us not overlook the need for an effective LPG regulatory framework.
Mr Wachira is the Director , Petroleum Focus Consultants [email protected]
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
