State’s push to grow LPG use fizzles out as oil firms cut investments

Oil marketing companies are holding off investing in the expansion of their cooking gas operations, citing a resurgence in the illegal refilling of cylinders.

The firms say despite the enormous potential in transitioning Kenyans from reliance on dirty fuels such as charcoal and firewood, rogue elements within the industry are eroding their investments and are now wary of putting more cylinders into the market. 

This is even as the government looks to increase per capita consumption of liquified petroleum gas (LPG) to 15 kilogrammes from the current seven kilogrammes, leveraging the infrastructure of oil marketing firms. 

The Energy and Petroleum Regulatory Authority (Epra) said the State will push some 9.6 million cylinders to low-income households, through the distribution channels of the oil marketing companies – many of which have LPG products in the market.

This is an upgrade from the earlier 4.4 million cylinders that the government had planned to distribute to low-income households.

State-run National Oil Corporation of Kenya (Nock) had sought to distribute cylinders to Kenyan households but the exercise was marked by irregularities. 

“The government strategy is to leverage on the private sector to distribute cylinders. Government will invest by capitalizing the business, by distributing at least 9.6 million cylinders to low income households,” Daniel Kiptoo Bargoria, Director General, Epra. 

LPG consumption in Kenya has over the last decade seen significant growth, increasing by more than 300 per cent.

Players, however, say this is a constrained growth, noting that consumption could significantly grow if the industry can rid off illegal players and give the legit industry confidence to invest.  

The Petroleum Institute of East Africa (PIEA) said despite the potential, industry players are cautious due to the growth in the illegal segment of the sector.  

PIEA Chairman Peter Murungi said the industry has been wary of investing in more gas cylinders, noting that whenever they have increased their cylinders, it is usually to the benefit of the black market.  

“If you look at countries that are at the same economic level as Kenya, the per capita consumption of LPG is at 70 kilogrammes. In Kenya we are at about 6.5 kilogrammes. The opportunity to grow consumption,” he said, explaining that going by the past growth in LPG consumption but also that of other petroleum products by both industries and households, there is still huge room for growth in cooking gas usage. 

“Despite the potential, nobody is keen on bringing gas cylinders into the market. What we have seen is that certain players look for cylinders brought to the market by other companies, they refill and sell,” he said, adding that marketers have shied away, which has meant that the industry “has been chasing the same number of cylinders that were there 10 years ago.” 

The uptake of cooking gas has been on the rise in the last decade, growing from about 93,600 tonnes in 2012 to 414,000 tonnes last year. 

According to Epra, the number of LPG refilling plants has increased from nine in 2009 to 138 filling plants currently.

The number of LPG brand owners has increased to 90, while there are about 11 million cylinders in the market.  

The growth was partly propelled by the 2009 regulations that established an exchange pool that enabled consumers to refill their gas cylinders at any petrol station or LPG outlet that was a member of the pool.  

This, however, had the unintended consequence of seeing an increase in illegal refilling of cooking gas. 

While the exchange was designed to enable the LPG outlets to collect  cylinders and hand them over to their brand owners, some unscrupulous players would retain some of the cylinders and illegally refill them. 

Epra did away with the exchange pool in 2019 following review of the Petroleum (Liquefied Petroleum Gas) Regulations  through the Legal Notice 100 of 2019, which restricts consumers to refill cylinders at outlets owned or licensed by the brand owners.

While consumers lost the convenience of refilling at the nearest LPG outlet, it was expected this would reduce illegal refilling and in turn enhancing safety.

The Legal Notice also placed the responsibility of cylinder safety on the brand owner as Epra tried to arrest the gas cylinder explosions that were becoming common within households. 

When a consumer buys LPG at the outlets owned or licensed by brand owners, the companies take the empty cylinder and take through certain checks, ensuring it is safe for refilling and taken back to the market.  

The new regulations gave a degree of confidence to investors, who brought to the market new cylinders. There was also increased interest in other players with firms assembling cylinders locally upping capacity both personally and production, as they eyed for boom in business.

But this only lasted awhile and today the industry’s interest again waning due to resurgence in illegal refiling.

“After a 10 year lull, you could see new cylinders coming to the market,” said Mr Murungi, noting that impact that Legal Notice 100 had on the industry. 

“We have also grown local manufacturing of gas cylinders. Industry players worked with local manufacturers and had them upgraded to international level and they are getting tenders not just from the local industry but across Africa.” 

He added that this has in recent years changed and the industry is no longer enthusiastic.  

Mr Murungi noted that the challenge is not insurmountable, noting that the industry has in the past faced similar challenges with the adulteration of diesel and super petrol but was able to turn around the then rogue players and brought them into the legit fold. 

He proposed regularising some of the players currently suspected of undertaking illegal refiling, bringing them under the purview of the petroleum industry regulator but also security agencies.  

“We have walked this journey before for the fuel industry. Adulteration was big but we dealt with it. Today we have come to the table and do clean LPG business,” Mr Murungi said, adding that “the market continues to grow. Opportunities have never decreased.” 

Epra has in the recent past insisted that LPG plants have CCTV cameras. They players should also give Epra access as one of the measures to increase surveillance and clamp down on illegal activities.  

Mr Murungi noted that bringing some of the players suspected of undertaking illegal refilling to the “industry table” as well as putting them on the radar of Epra would help reduce the ill. 

An industry source explained why the industry is willing to negotiate with the illegal players.  

“We have gotten to a point where we cannot just shut down all the plants that are doing illegal refiling. If that was to happen today, it would create a vacuum that the mainstream players would six months, possibly one year before they can fill it. The illegal plants have entrenched themselves and despite their products posing huge risk, there is a feeling in the industry that they may have helped with the last mile reach to consumers,” said the source. 

“The authorities and to an extent the industry has to figure out how to regularise some of them, at least those whose operations have embraced aspects of safety have  but there are others who would have to be shut down outrightly.” 

Edward Kinyua, director petroleum and gas at Epram, acknowledged the challenges that the industry faces.  

He said Epra is in the process of reviewing the LPG regulations, and among the areas that are being relooked at are increasing the number of cylinders that an LPG marketer needs to maintain in the market for their licences to be renewed.  

“We are working to ensuring that the environment is conducive,” he said, adding that the regulator plan to upgrade the LPG regulations and will among other things, require marketers to maintain 30,000 cylinders in the market from the current 5,000.

While this could increase entry barriers for new players especially local firms without the backing of deep pocketed investors, he notes it will also make illegal refilling difficult. 

“If you have an LPG plant, then you need to have at least 30,000 cylinders. We have also tied a cylinder to a plant. You cannot have an LPG plant and do hospitality (refiling for other players). It will be a requirement for [LPG plant] construction permit, we will need you to proof that the plant can be utilised to capacity without relying on other people’s cylinders.” 

“What has been happening is that when a player has 5,000 cylinders, and they have refilled them. Once they go to the market, they are idle and they have spent all this money and have to find a way of making themselves busy, and that, at times, ends up being illegal refiling.” 

Review of LPG regulations has been finalised and are being reviewed by the Attorney General and “we should have it in place soon.” 

Mr Kinyua also said Epra would review the data verification rules to ensure that the information that the LPG marketers give is in line with what they are selling.

“You cannot be selling a million tonnes and you only have 5,000 cylinders. The objective of revising this (data verification)regulation is to ensure verifiability… so that we can know who has how many cylinders and who is selling what.”

He added the need to form an industry committee that look a the statistics and verify as well as confront players whose numbers does not tally.