ERC in talks with oil sector ahead of LPG price controls

The Energy Regulatory Committee (ERC) has started talks with gas industry players ahead of the publication of new regulations expected to culminate in the control of gas prices and streamlining of imports.

ERC has been mulling over the regulatory changes against a backdrop of gas prices remaining relatively high even with the fall in crude oil price in the international market.

ERC senior manager (petroleum) Edward Kinyua told the Business Daily that price controls for gas cannot happen without the new framework of regulations which is expected to be included in the Energy Act.

Mr Kinyua added that the regulation of gas prices will ultimately require an open tender system (OTS) for imports like in the case for petroleum imports.

“The bulk storage facility at the coast put up by Africa Gas and Oil Ltd (AGOL) has now been commissioned, licensed and is working.
‘‘We are now consulting on the common user modalities. The stakeholder consultation process will also help us when we come up with a pricing model, which we shall also publish for public exposure,” said Mr Kinyua.

AGOL’s facility has a capacity of 14,000 metric tonnes of gas, while the older import terminal at Shimanzi has a capacity of just 1,400 metric tonnes.

An OTS arrangement, similar to the one for petrol imports, would allow one marketer to import Kenya’s monthly gas in bulk on behalf others allowing a uniform price.

According to the latest figures from the Kenya National Bureau of Statistics, the price of a 13kg cylinder of gas fell from Sh3,074 in June last year to Sh2,740 at the end of March 2015, an 11 per cent decline.

However, the statistics largely capture prices of mainstream marketers — now engaged in an aggressive safety campaign against independent vendors selling for as low as Sh1,700 per cylinder.

READ: Gas prices remain high as global crude oil prices plunge

Over the same period, the pump price of petrol and diesel has fallen by between 21 and 25 per cent per litre, while in the international market the price of a barrel of crude oil from which the products are derived has fallen by 40 per cent to $65.

The price of kerosene, whose use as a household fuel the government has been trying to reduce in favour of the more environmentally friendly LPG, has over the same period fallen by 37 per cent from Sh84 per litre to Sh53.

Industry experts who support stricter ERC controls have argued that more efficient import and distribution infrastructure will enable consumers to fully enjoy the benefits of global price fluctuations, citing the cost of supply chain logistics as a cause of expensive LPG irrespective of global prices.  

“If ERC came in to regulate the LPG prices, market prices may reduce quite significantly,” said Oil and Energy Services chief executive Mwendia Nyaga in an earlier email to the Business Daily.