Small-scale gas suppliers worry over centralised imports plan

A cooking gas retail outlet in Kibra slums. Importation of the crucial commodity will soon only be through the Open Tender System. [Stafford Ondego, Standard]

A section of the local cooking gas industry has protested against plans by the government to centralise the importation of the commodity into the country, noting that this could lock out many of the small players and slow down the momentum in the uptake of cooking gas. 

They say without a government-owned LPG bulk storage facility, the entire industry would be compelled to rely on a privately owned facility where costs are not regulated. 

The Energy and Petroleum Regulatory Authority (Epra) last week said it is looking into the possibility of restricting LPG imports and would only allow importation through the Open Tender System.

This is in a bid to increase its oversight of trade in LPG, arguing that centralised imports would be one way of enabling Epra to have sight of all cooking gas imported into the country from the point of entry to when it is sold to consumers or re-exported.

The plans also include tracking the gas once it has landed into the country. 

Other than Mombasa, cooking gas is also imported from Tanzania through border points such as Namanga. It is these imports that are likely to be blocked should the government go on with plans to compel dealers to import through the Open Tender System (OTS).

Some players however say without State storage, they would be left at the mercy of competitors who have invested not only in storage facilities but are also active players in the wholesale and retail market. 

“This would hand immense power to a few industry players who are already powerful as it is…this could easily kill dozens of small industry players,” said an industry source who did not wish to be identified.

“There is no common user LPG facility in Mombasa, the only facility in Mombasa is privately owned. If Epra wants to institute such measures, it should ensure that there are adequate storage facilities owned by the government where the charges for industry players would be fair.

“A common user facility would be welcome but then what we have is a private investor who will charge me hefty amounts such that when I get my gas to the market, I cannot compete.”

The source said a few companies dominate the whole chain from importing and storage to retail, with some of their practices being anti-competitive.

“If the government forces all other players to import through Mombasa and use their facilities, then it will surely kill many small players. These players have in recent years been critical in increasing access to LPG in the country.”

At the moment, Kenya has low LPG storage capacity, with the largeste facility being the 10,000 metric-tonne facility by Africa Gas and Oil Ltd.

There is also the Shimanzi oil and gas facility, jointly owned by the government and major oil marketers, that has a capacity of 1,400 tonnes.

The source noted that compelling players to use the facilities of other private players would be contrary to Epra’s mandate of leveling the playing field.

“Up until the point we have adequate LPG storage facilities it is not prudent to restrict gas imports through the OTS.

“Epra can ensure that what is being imported from Tanzania is of required quality by increasing its presence at the border or linking with the Kenya Bureau of Standards (Kebs) and other government agencies that have a presence at the border,” said the source.

“The other thing is that LPG players in East Africa mostly source for gas from the same place. At times, the cargoes of different companies will be shipped by the same vessel, which will offload to Kenyan importers at Mombasa and then proceed to Dar es Salaam to offload for Tanzanian importers.

“If the quality of gas imported to Tanzania is questionable, then the quality of what is coming through Mombasa is also questionable.” Epra said there are plans to review the law and require all cooking gas importers to ship in the fuel through OTS. 

Through the system, petroleum industry players compete to import fuel on behalf of the industry, with the firm offering the lowest bid for freight and premium getting the job.

Kenya has for about two decades imported super petrol, diesel, kerosene and jet fuel through the OTS.

The system has however also not been in use for about a year as the government implemented the government-to-government fuel importation deal with Gulf countries. The agreement was implemented in a bid to slow down the weakening of the shilling and deal with dollar shortage in the local market, where the government contracted three state-owned Gulf oil companies to supply Kenya with fuel on a six month credit period.

The deal was initially for nine months but was extended to December this year.

Epra’s Director Petroleum Edward Kinyua  said the regulator is undertaking a review of a legal notice published last year to include LPG among the fuels that local industry players will need to import under OTS.

The notice introduced the government-to-government system as among the modalities of procuring petroleum products for the country.

Mr Kinyua added that the review aimed at ensuring that Epra and other State agencies have increased oversight of all cooking gas coming into the country, including the cylinder refilling plants where the gas ends up.

“We are looking at reviewing the Legal Notice 3 of 2023 to include LPG as one of the products that will be imported through the tender system,” he said.  

“One of the problems that we have with LPG is that we have different sources. There is LPG coming through Oloitokitok and Namanga and that is a very porous way of bringing in LPG because some of it ends up in illegal sites.”

Kinyua said illegal refilling is a thorn in the flesh for the industry and government, and the largest illicit activity in the petroleum sector.

“There is merit in centralising how we import LPG so that we are able to account for that gas from when it lands to when it is sold or exported,” he said.

Cooking gas importation was not included in the OTS and has also not been subject to price control as the government cited inadequate storage facilities. 

It now says there is increased private sector interest in putting up facilities as well as a planned bulk LPG handling facility by Kenya Pipeline Company at the Kenya Petroleum Refineries following last year’s conclusion of the transaction to transfer the assets to KPC. 

The plant, with a capacity of 30,000 tonnes,  is however still at its formative stages and could take years before it is operational. Tanzanian firm Taifa Gas is also building a 30,000 tonne LPG storage facility that could increase the current cooking gas handling capacity in Mombasa. The plan to have stricter rules in place for the importation of LPG comes weeks after the explosion at an LPG plant at Miradi area in Embakasi that left 13 people dead and another 300 injured.

There have also been other cooking gas accidents, some of them at the household level that have claimed lives.

Epra has shut down numerous facilities for illegal refilling and has arraigned many of the directors of these facilities in courts. It is currently seeking prosecutorial powers as it seeks stiffer penalties for offenders.

The uptake of cooking gas has been on the rise in the last decade, growing from about 93,600 tonnes in 2012 to 360,000 tonnes last year.

According to Epra, the number of LPG refilling plants has increased from nine in 2009 to 138 LPG filling plants currently. The number of LPG brand owners has increased to 90 while there are about 11 million cylinders in the market. 

The growth was partly propelled by the 2009 regulations that established an exchange pool that enabled consumers to refill their gas cylinders at any petrol station or LPG outlet that was a member of the pool. 

This however had the unintended consequence of seeing an increase in illegal refilling of cooking gas.

While the exchange was designed to enable the LPG outlets to collect LPG cylinders and hand them over to their brand owners, some unscrupulous players would retain some of the cylinders and illegally refill them.