Why you may pay more for gas

Kenya: The price of cooking gas - Liquified Petroleum Gas (LPG) could rise significantly due to prolonged legal battle between Government and small medium enterprise (SMEs) firms engaged in refilling of cylinders.

This is after the case slated for hearing on July 31 was postponed to the end of this month. The court also extended orders barring Government from demolishing gas refilling plants owned by nine companies it claimed were operating illegally.

Chair of the association of the firms dealing in gas, Zein Salimin said they have been locked out of business, pending the outcome of the case. He said SMEs play an important role in supply of LPG, adding that shutting them down would destabilise the supply chain, with possibility of shortages and spikes in prices. “Shutting down our plants will see few multinationals monopolising the trade,” he warned.

He noted that many jobs and business opportunities will be lost if Government demolishes nine unlicensed refilling plants at Industrial Area, Nairobi. The companies had been operating within laid down procedures and are currently in the process of getting compliant, having followed all requirements as required by the Energy Regulatory Commission (ERC).

Gas plants

Salimin spoke after the court declined to lift an order barring the Government from any demolition. Judge Monica Mbaru said the ERC had not explained why the Government is inclined to pulling down the unlicensed gas filling plants. But Energy Principal Secretary Joseph Njoroge disputed the claims and said the companies had been operating the plants illegally.

Judge Mbaru maintained the orders restraining the Petroleum Institute of East Africa, the Inspector General of Police, the County Government of Nairobi, ERC and the Cabinet Secretary, ministry of Energy and Petroleum from demolishing the filling plants are still in force till August 28, 2014 for an inter-parties hearing.

The owners of the plants who have been in business for more ten years, argued that if State agencies make good their threat to pull down the plants, then prices of gas will continue to surge due to a monopoly by multinationals.

The country was in 2007 and 2008 with frequent shortages and prices hikes, which according to Zein Salimin of Gee Gas Ltd, was due to a reduction in supply by the multinationals.

There are over 800 dealers in Nairobi and about 1,200 agents in estates offering door to door delivery services, a move that has upped competition with the multinationals that do not offer such unique supply chain management.

“A gap was created hence we came in went to Zambia and Tanzania to import gas to cushion the need in market, this necessitated the drop of prices,” said Salimin. “The Government receives taxes from our businesses and we are in the long bureaucratic process of complying with licensing,” said George Wakaro who runs Gee Gas Ltd.

Transport logistics

According owners of the companies, there is a tendency of favouritism towards multinational companies and unfair treatment from government. “Multinationals rely on transport logistics of small traders, in fact 99 per cent,” said Wakaro. “Agents carrying out businesses in estates will lose their jobs in we are edged out.” Currently, a cylinder of 13-kg gas costs Sh3,400 in multinational outlets while the middle tier firms sell the same at about Sh2,400.

According to Swift Energy Ltd Chief Executive Gideon Njoroge, the standardisation of gas cylinder valves has brought competition in the Liquefied Petroleum Gas  market. “In fact, consumers and agents are already reaping the benefits as monopolistic practices of multinationals are no longer a problem,” he said.

The Energy ministry had claimed that the LPG refilling plants were a security threat but has failed explain the insecurity concerns. Players argue that the plants are safe since they are located at Industrial Area, Nairobi and not in residential areas.

Traders say there is no patent on Gas. They buy in bulk from the Multi-nationals and later re-sell at subsidised prices. They say their product is imported from Zambia and Tanzania just as the multi-nationals do. “So if claims that our gas is not good, then why is the Government is having preferential treatment to other firms,” said Consumer Gas Kenya Ltd Chief Executive Hiliule Mohamed Bare.

With the standardisation of cylinder valves, Bare said, the cylinders can be refilled anywhere.