Tax reprieve fails to spur cooking gas usage

BY NJIRAINI MUCHIRA AND MACHARIA KAMAU

Even though the Government zero-rated cooking gas in 2005, this has not translated into increased consumption, mainly due to supply constraints.

LPG usage has been curtailed by lack of enough storage capacity that stands at 3,960 tonnes, comprising 1,250 tonnes LPG tanks at the Kenya Petroleum Refinery Limited (KPRL), 1,300 tonnes at Shimanzi Oil Terminal, and 1,410 tonnes owned by the oil marketers.

Apart from the Mombasa facility, Kenya Pipeline Company has revived plans to build inland bulk LPG storage and bottling facilities.

In January KPC floated a tender for a feasibility study on demand of LPG in the East Africa region and preliminary design of the necessary infrastructure within Kenya to meet growing demand.

The new study will be an updated version of another study conducted in 2004 by Petroleum Development Consultants that recommended development of LPG facilities in Mombasa (6,000 tons), Nairobi (2,000 tonnes), Nakuru (150 tonnes), Eldoret (200 tonnes), Kisumu (300 tonnes) and Sagana (50 tonnes).

Oil marketers like KenolKobil is also investing heavily in LPG storage facilities across the country and in the region with hopes of growing its LPG business.

It is also critical to note that Kenya banned importation and local manufacturing of cylinders that do not have standardised valves.

Worse still, the government has stubbornly refused to reduce a 15 per cent surcharge on LPG imported through neighbouring countries despite protracted calls by marketers.

The 2005 regulation requires companies that import LPG to Kenya through other markets other than the port of Mombasa pay 15 per cent of the cost, insurance and freight (CIF) before the product is allowed into the country.

"LPG is the only remaining viable business for marketers. Introducing price controls will only further erode margins," said a senior manager of a top oil marketing company.

Considering that unified valve abolished competition based on brand, oil marketers were left with pricing as the only carrot they could dangle to consumers. This prompted some marketers to introduce low value cylinders targeting the lower end of the market segment that has largely been ignored as far as LPG usage is concerned.