Cheaper gas dream up in smoke as WB axes Sh6.2b loan to firm

Cooking gas cylinders dealer in Kibra slums on May 21, 2021. [Stafford Ondego, Standard]

The World Bank's private lending arm has been forced into a U-turn over its dealings with a Kenyan firm that wanted to set up a multi-billion-shilling cooking gas plant in Mombasa.

The International Finance Corporation (IFC) told The Standard it has cancelled funding to Mombasa Gas Terminal Ltd (MGT), dealing a blow to the project that was expected to help bring down the cost of the crucial commodity in the country.

The firm planned to construct a liquefied petroleum gas (LPG) import terminal in the port of Mombasa at a cost of Sh14.5 billion.

An earlier listing by the IFC showed it would issue a loan of $48 million (Sh6.2 billion) for the project.

The IFC said its earlier commitment was informed by its commitment to improving the lives of Kenyans by increasing access to cleaner fuels for cooking and electricity.

"For this purpose, IFC considered financing the Mombasa Gas Terminal to support the construction of a greenfield Liquified Petroleum Gas facility in Mombasa," said an IFC spokesperson in response to our queries.

IFC has now deleted the listing of the project on its website as part of regulatory disclosures.

Cancelling projects is rare for the World Bank and its sister agencies. IFC did not give specific reasons for the loan cancellation.

"While MGT's owners are reassessing the future of the project, IFC is currently not involved in financing MGT," explained the IFC spokesperson.

"No IFC funds have been disbursed."

The cancellation is a rarity for the IFC - a sister organisation of the World Bank tasked with private-sector financing in developing countries. It leaves the future of the project in limbo.

IFC has invested billions in Kenya, East Africa's biggest economy.

MGT said earlier it planned to build the gas hub with the backing of Dubai-based Milio International - a prominent international petroleum logistics, marketing, trading, exploration and production company.

MGT Director James Turnbull confirmed the IFC deal had fallen through.

"We continue to look at opportunities to advance the Project and remain excited by the potential benefits that this may bring to Kenya," said Mr Turnbull in an emailed response to our query.

"As you will be aware, Kenya and its neighbouring regions would benefit substantially from a more competitive LPG supply marketplace, which would result in lower importation costs and a more abundant, cleaner source of fuel."

Turnbull said while "the project was approved in principle by IFC, no funds have ever been drawn under the IFC facility."

"We will make announcements as and when there is any progress to report," he said.

On June 2, 2021, MGT said in a statement it had secured the IFC facility after clinching regulatory approvals from the national and county governments to begin construction of the project, which has since stalled.

"We confirm that we have received a facility from the World Bank for the $23 million (Sh2.5 billion) phase one of our bulk LPG import and storage terminal," said the company at the time.

MGT had said its terminal will include a private berth for unloading mid-sized LPG carriers, onshore storage whose capacity is 22,000 metric tonnes and associated infrastructure that will have multiple landing points for the transfer of LPG to transport vehicles.

"This project will underpin Kenya's ambitious goal for sustainable economic development. We aim to complete phase one construction and begin operations within six months," said MGT.

"The second phase will complete the storage capacity to 22,000 metric tonnes or more with an annual throughput capacity of 400,000 metric tonnes per annum."

In recent years, the World Bank through IFC has invested billions of shillings in Kenyan companies, cementing its role as one of the most prominent foreign institutional investors in the local market.

IFC has invested in about 125 local firms so far, acquiring significant stakes in some companies in the form of long-term loans.

"IFC finances projects and companies through loans from our own account, typically for seven to 12 years. We also make loans to intermediary banks, leasing companies, and other financial institutions for on-lending," says IFC on its website.

"A company or entrepreneur seeking to establish a new venture or expand an existing enterprise can approach IFC directly."

Multi-billion-shilling investments in new LPG import and distribution terminals have raised Kenyans' hopes for cheaper cooking gas.

Several firms have in recent weeks applied for State licences to set up terminals that will act as common user facilities for storage and loading for LPG dealers.

There are limited LPG handling facilities in Kenya, which has exposed the market to supply shocks and stunted the growth of consumption.

The private companies are keen to reap from the increased use of cooking gas in Kenya despite a lack of investments by the government and inadequate storage facilities.

Unlike petroleum prices, cooking gas prices are not set by the regulator, giving dealers a free hand to set margins.

LPG use has been on the rise in the country, with monthly consumption ranging from 15,000 to 23,750 metric tonnes, according to the energy regulator.

However, costs remain high. A 13kg cylinder retailed at an average of Sh3,101.94 last month, according to the Kenya National Bureau of Statistics, a 9.5 per cent jump compared to last year.

Previously, oil marketers imported cooking gas individually in small quantities due to inadequate gas discharge facilities.

This led to shortages and rises in prices due to high import premiums and demurrage, which are penalties marketers pay shipping companies when tankers fail to offload in the stipulated period.