Market jitters over State plan to control LPG prices

BY NJIRAINI MUCHIRA AND MACHARIA KAMAUThe acrimonious relationship between oil marketing companies and industry regulator Energy Regulatory Commission (ERC) is set to deepen after it emerged that ERC is set to introduce price controls for liquefied petroleum gas (LPG).More than one year after the ERC reigned in on oil marketing companies following the introduction of fuel price controls, something that has curtailed marketers from adjusting prices at will and in the process eaten into their profit margins, now the regulator wants to replicate the same for LPG.Move to regulate LPG pricing is already causing disquiet in the industry. [PHOTO: BONIFACE THUKU/STANDARD]The Weekend Business has established that ERC is reviewing the Energy (liquefied petroleum gas) Regulations 2009, to not only set prices for cooking gas refilling by oil marketing companies, but also to determine how much the various types of gas cylinders should cost."ERC plans to start regulating LPG prices after the handling and storage facility under construction in Mombasa is complete," said a source privy to the process.He further reckons that the aim is to bring down the skyrocketing cooking gas prices that have surged by more than 100 per cent in recent months, as well as promote usage of the gas that is economical compared to kerosene and firewood. While the introduction of price controls for LPG would be sweet news for consumers with early predictions indicating that prices could decline by as much as 50 per cent, it will be an added pain for oil marketing companies already suffering from the effects of fuel price controls. This is because it will add on the punitive measures imposed by the 2009 regulations that aimed at enhancing public safety, increasing consumer access, encouraging competition and curbing unfair business practices.In deed low uptake of environmental friendly LPG has been a major concern for energy sector policy makers who are under pressure to reduce the country’s heavy reliance on firewood and its negative impact on the environment. Besides, the continuous rise in kerosene prices is becoming a significant burden to low income earners.Latest pricingOn Friday, the cost of refilling a 6kg gas cylinder stood at Sh2,900 in most outlets, up from Sh1,200 a year ago, while the cost of refilling the 13kg cylinder was Sh4,500 from Sh2,400 a year ago.The move to regulate LPG pricing is already causing disquiet in the industry. But industry players were cautious on the issue because they have not seen the regulations."It is too early to talk about the issue, but ERC must make sure whatever they do is fair to everybody," said Rida Elamir, chairman of industry lobby group Petroleum Institute of East Africa.On her part, National Oil Corporation managing director Sumaya Athmani reckoned that ERC must take into cognizance the shortcoming of fuel price controls when developing LPG regulations. Such evaluation, she said, will help the regulator avoid distorting operations in the industry."ERC must take lessons from the fuel pricing controls and in particular on the issue of supply constraints," she said.The industry is bracing for battle, akin to what was witnessed a few years ago when the Government forced the standardisation of cylinders and unified valves to enable Kenyans refill their cylinders at any outlet irrespective of the brand. This follows ERC’s determination to introduce the price controls, which is informed by the establishment oft a new handling and storage facility currently under construction in Mombasa.The proposed facility is set for completion in September. The facility, being constructed by the Africa Gas and Oil Company at a cost of Sh12 billion, will have a capacity to handle 14,000 tonnes and will eliminate the importation and supply constraints.Currently, oil marketers site they lack adequate import and storage facility as a cause of incurring huge demurrage costs and thus the reason for the high LPG pricing.Of importance is the fact that the facility will propel LPG consumption that currently stands at 100,000 tonnes of cooking gas annually and is projected to increase to 300,000 tonnes by end of this year.Per capita LPG consumption in Kenya is about two Kg per person, which is low compared with Senegal at 10kg, South Africa 6kg and at Ghana 5kg.

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