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The country is yet to adopt a centralised system for procuring liquefied petroleum gas, one year after rules to guide the process were drafted.
The country is yet to adopt a centralised system for procuring liquefied petroleum gas, one year after rules to guide the process were drafted.

The delay has resulted in erratic prices of the product, commonly referred to as cooking gas, as oil marketers make individual shipments.

It has also hindered the Energy Regulatory Commission from controlling prices of cooking gas, as is the case with fuel where the regulator sets maximum pump prices every month.

A senior official at the Ministry of Energy told Smart Company in a telephone interview that the draft terms and conditions for an open tender system (OTS) for LPG were awaiting agreement on a tariff that is to be applied for use of a common storage facility in Mombasa before their enforcement.

The facility is owned by Africa Gas and Oil Company (AGOL), which was contracted by the government to build an LPG storage terminal in Mombasa.

“The OTS contract is ready for signing but we are yet to agree on a throughput tariff. The figure AGOL gave was not acceptable to the industry, hence the need for further negotiations,” said Mr Joseph Wafula, senior petroleum economist at the Ministry of Energy and Petroleum.

Through the OTS system, the Energy Ministry awards one or two oil marketing companies the tender to import products on behalf of other marketers to ensure that freight costs are uniformly tracked, laying the ground for price control.

It allows firms to negotiate for lower product prices as they purchase in bulk, therefore, enjoying economies of scale.

It is understood that AGOL asked for $185 per tonne of LPG stored at its facility, while oil marketing firms offered to pay between $115 and $125 per tonne.

High maintenance costs

AGOL’s LPG storage terminal comprises 500 tonnes onshore and 14,000 tonnes capacities. The firm cited high costs of maintaining the offshore facility in its request for the rejected user tariff.

Two weeks ago, AGOL’s management held a meeting with government officials where it was resolved that the firm invests in a larger onshore LPG storage terminal in preparation for enforcement of the open tender system.

“Demand for LPG is growing. Therefore, there is the need to prepare for the future. Discussions are at a high level to increase the existing storage capacity to 50,000 tonnes,” AGOL’s general manager Ali Mbogo said on phone.

The planned expansion will see construction of an additional storage capacity of 45,500 tonnes, starting 2016, for a period of up to four years.

Under the proposed terms for an LPG open tender system, firms bidding to supply LPG must be licensed and must not have defaulted on their off-take agreement with the Kenya Petroleum Refineries Ltd prior to the date the OTS rules come into effect.

Operations at KPRL were shut down in September last year following a disagreement between the government and Essar Energy Ltd of India, which was a partner in the region’s only refining facility.

Withdraw bidding offers

The proposed OTS rules also allow winning bidders to withdraw their offers in the event that the volume of LPG tendered is reduced by more than 15 per cent of the tender cargo size.

They impose a penalty of $10 per tonne on a firm that wins the bid but withdraws from delivery of the product outside the accepted terms. The same penalty applies to buyers who withdraw from the quantity tendered. Such firms will pay the specified penalty to the seller.

Last month, ERC announced plans to regulate prices of cooking gas to cushion consumers from high prices set by oil marketers.

Latest data from the Kenya National Bureau of Statistics indicates that the average price of a 13 kilogramme cylinder of cooking gas rose slightly to Sh3,111 in September, this year, from Sh3,109 in August.

Compared with a year ago, in September, the price of cooking gas rose by 9.6 per cent from Sh2,836 the same month last year.