Significant Treasury Investment to Propel Kenyan LPG Infrastructure and Lower Consumer Costs

by | May 16, 2023 | Business, News | 0 comments

The Kenyan Treasury has confirmed a generous allocation of Sh538.68 million towards an ambitious project geared towards expanding the liquefied petroleum gas (LPG) distribution network in the country. This initiative comes as part of President William Ruto’s Bottom-Up Economic Transformation Agenda (BETA), aiming to provide citizens with affordable, accessible cooking gas.

The funds, earmarked for the upcoming fiscal year beginning in July, include Sh461.63 million dedicated to acquiring a specialized plant and necessary equipment. This move aligns with the government’s accelerated preparations for the construction of a 30,000-metric tonne LPG storage and handling facility in Changamwe, Mombasa County, led by Kenya Pipeline Company (KPC).

The proposed Finance Bill 2023 outlines plans to exempt LPG from value-added-tax (VAT), Import Declaration Fees (IDF), and Railway Development Levy (RDL). This strategic initiative aims to significantly reduce the cost of cooking gas for Kenyans, thereby relieving pressure on forest resources by minimizing the need for charcoal burning and firewood collection.

Currently, cooking gas is taxed at the rates of eight percent VAT, Import Declaration Fees, and Railway Development Levy. The proposed VAT exemption on LPG builds upon the Finance Act 2022, which halved the tax imposed on cooking gas. This substantial reduction was a major boon for consumers grappling with the rising global prices of the commodity and other oil products.

The new Changamwe facility, according to regulatory filings with the National Environment Management Authority (Nema), will primarily source supplies from pressurized LPG ships docked at the newly constructed Kipevu Oil Terminal 2 jetty. The Pakistani firm, Petrochem Engineering Services, has been contracted by KPC to design the LPG import and storage facility in Changamwe, and five private companies have expressed interest in utilizing the new Kipevu Oil Terminal 2.

The Mombasa facility, once operational, will boost the efficiency of cooking gas loading for distribution, thus reducing demurrage costs. KPC anticipates that faster loading will lead to a 30 percent reduction in LPG prices as the benefits of reduced demurrage costs are passed on to consumers.

In 2016, Kenyan households enjoyed lower cooking gas prices as the Treasury eliminated the tax on LPG to cut costs and increase uptake among the poor, who traditionally depend on dirtier fuels like kerosene and charcoal for cooking. However, a 16 percent VAT on cooking gas was reinstated in 2021. This, coupled with a surge in crude prices, led to a significant increase in the cost of the commodity before measures were taken in the Finance Act 2022.

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