Kenya in drive to boost LPG: any lessons for Nigeria?
Kenya is looking for investors to construct liquefied petroleum gas (LPG) storage facilities and cylinder filling plants inland to supply the local market, with the country’s annual LPG usage expected to rise to 735,217 metric tonnes (mt) by 2035 if supply constraints are removed, according to its ministry of energy.
State-owned Kenya Pipeline Company (KPC) is set to build a storage facility of 2,200 mt in Nairobi, and the government is encouraging investors to build several storage facilities in Nakuru, Eldoret, Kisumu and Sagana under public private partnership framework.
Jospeh Njoroge, Energy Principle Secretary said LPG usage in Kenya is still low, at about 7 percent, with most consumption concentrated in urban areas as most people depend on firewood and charcoal for cooking.
Kenya plans to increase the tax level on kerosene while removing all taxes currently levied on LPG to make the product more affordable, Njoroge said. “By removing taxes on LPG, we can deviate use of kerosene and wood fuel for cooking to gas.”
He added that the ministry of energy estimates Kenyan Shilling 7 billion ($80 million) will be collected every year from taxes and duties on kerosene, while LPG is promoted as a clean environmentally friendly source of energy.
The ministry is holding discussions with other departments of the Kenyan government as well as the petroleum industry to find ways of reducing the cost of LPG, Njoroge added.
Analysts said the removal of taxes on gas, cookers and other accessories will lead to approximately 8 million new LPG consumers in three to four years. A cylinder filled with 6 kg of LPG retails for about Shilling 1,400 ($159).
However, the commodity’s current erratic supply often leads to retailers hiking LPG cost, meaning demand has stagnated due to inadequate storage facilities at port of Mombasa as well as inland.
According to Njoroge, the country now depends on LPG imports from the Middle East after Kenya Petroleum Refineries Ltd (KPRL) shut down in September 2013. KPRL used to produce 30,000 mt of gas annually.
The Petroleum Institute of East Africa (PIEA) said marketers had proposed a 16 percent value-added tax on LPG, with a 2 percent import duty on cylinders and gas cookers.
PIEA Chairman Polycarp Igathe said introduction of VAT on LPG in the budget in 2013 made acquisition of cylinders, cookers and accessories by most first time buyers more difficult.
Data compiled by PIEA shows Kenya consumed 14,803 mt of LPG between January and March this year. Usage of gas stood at 59,626 mt from January to December last compared with 63,823 mt in 2012.
In Nigeria, the consumption of kerosene remains very high, not only posing health risks, but also gulps whopping sums from government’s coffers in the name of subsidy, which does not benefit the target audience. Unfavourable government policies, inadequate storage and transportation infrastructure and subsidy on kerosene are said to be major factors fuelling low investment in LPG, which contributes only about 5 percent of cooking fuels and is still used only minimally in industries in the country.
Yinka Omorogbe, former NNPC legal adviser and professor of law, Nigerian Institute of Advanced legal Studies, Abuja recently noted that 122 million Nigerians, representing 75 percent of the population, rely on traditional biomass for cooking.
LPG operators in the country have continued to stress the need for government to intervene and address bottlenecks such as high tariffs on imported LPG equipment and subsidy on kerosene to boost the use of LPG in the country. The government may well have to take a leaf out of Kenya’s book.
FEMI ASU