Kenya is attempting to dominate the liquefied petroleum gas (LPG) supply by building the largest import and storage gas facility in Mombasa and licensing more private companies to compete with Tanzania, which has dominated business in the region for years.
The announcement of the construction of a 25,000-tonne storage facility by Kenya Pipeline Company (KPC), which will be linked to the new Ksh 42 billion Kipevu Oil Terminal 2 (KOT) at the Port of Mombasa, comes days after Kenya to import gas from Tanzania through the Namanga border.
KPC has signed a giant Pakistani company; Petrochem Engineering Services plans to import and store LPG in Changamwe, Mombasa while five private companies bid to develop the new Kipevu Oil Terminal 2.
The Mombasa facility, when completed, will speed up loading of cooking gas for truck distribution, which will help reduce demurrage costs.
KPC says faster loading is expected to result in 30 percent lower prices for LPG once operational as oil marketers pass on the benefits of reduced demurrage to consumers.
“LPG storage capacity in Mombasa is limited and LPG ships experience enormous downtimes, which affects the retail price of bottled gas,” says KPC’s tender documents.
“KPC proposes the installation, commissioning and operation of a 500 ton per day LPG truck loading facility that will improve product evacuation and thus reduce vacancy restrictions and subsequently reduce demurrage costs.”
Limited LPG storage capacity in Mombasa has resulted in ships staying in port longer, resulting in higher mooring costs which are then passed on to consumers, thereby paying high prices for bottled gas.
KPC currently receives imported LPG from vessels docking at the Shimanzi Oil Terminal and fills it into its tanks – T610 and T611, located at its Changamwe facility. The product is then evacuated through connecting lines to local terminals for loading onto trucks.
Read: Kenya is trying to win back Dar’s fuel business
The lack of dock levelers for truck loading has been a challenge for gas companies and the facility, once complete, will allow companies to truck gas, which has proven to be economically viable.
With the completion of KOT2 with the capacity to connect various gas suppliers, the business controlled by a few companies will end the monopoly as five companies have already applied to connect to the terminal at Mombasa Port.
According to the National Environment Management Authority (Nema) and the Energy Regulatory Authority (ERC), more than five companies have applied for permits to construct gas plants.
Companies that have applied for the license to tap the KOT2 submerged gas pipeline include Aevitas Investment, Mombasa Gas Terminal Limited (MGT), Lions Gate Limited, Focus Container Freight Station and Mansa East Africa Limited.
Once licensed they will serve the untapped LPG market with the growing population and demand in the country and East African region.
Kenya imports about 40 percent of its gas annually from Tanzanian liquefied petroleum gas (LPG) companies through the Namanga and Holili border posts, with the rest being imported through the Port of Mombasa.
The LPG cost in Mombasa is much higher than Dar es Salaam LPG because the unloading and storage infrastructure in Dar es Salaam or Tanga ports is more efficient.
Earlier this month, Kenya began cracking down on gas importers from Tanzania when Deputy Commissioner for Revenue and Regional Coordination of the country’s Treasury, Joseph Kaguru, announced that traders were paying an eight percent Value Added Tax (VAT) instead of 16 percent.
Read: KRA is working to solve the congestion of LPG trucks in Namanga
Mr Kaguru added that the traders bring in the goods from the Middle East and use the Namanga border point to pay lower taxes under the pretense that they are sourcing from Tanzania.
With the ongoing crackdown, Kenya is now relying heavily on the Kenya Ports Authority‘s (KPA) new jetty project KOT 2 to open up the market, encourage competition and increase LPG consumption and lower prices for citizens .
The new KOT2 project includes a dedicated LPG berth and pipeline that will now allow larger ships to call at the Port of Mombasa, promoting economies of scale and drastically reducing transshipment costs.