LPG

Regulator and Cofek hold talks to review cooking gas price

EPRA introduced new regulations that introduced new deposit fees

In Summary

•Thousands of retail traders in the LPG sector will be required to obtain a license from EPRA to trade.

•EPRA has said the regulation to have a new entrant player begin a business with 5,000 cylinders will remain, but the player will have to prove that their number has grown to about 10,000 cylinders on the second year

Gas cylinders at a filling station. Photo/File
Gas cylinders at a filling station. Photo/File

Energy and Petroleum Regulatory Authority and Consumer Federation of Kenya (Cofek) have initiated talks in consideration to review the price of cooking gas that is anticipated to surge in the full effect of new regulations next year.

In June, EPRA gazetted Liquefied Petroleum Gas (LPG) Regulations, 2019 that introduced new deposit fees for gas containers and removal of the mandatory cylinder exchange pool which allowed exchange with any brand of gas at the point of purchase.

With the new laws, a consumer with a container branded X cannot have it changed at Y or Z filling stations, and if so, the marketers have to agree at a fee.

 
 

Even as EPRA remain firm on the regulations insisting they are meant to promote fair trade and safety to consumers, there are fears that the transition is highly likely to adversely affect consumers.

Analysts have also argued that the new LPG regulations appear to ring-fence the interests of major oil marketing firms at the expense of the members of Energy Dealers Association especially small local operators.

According to Cofek secretary-general Stephen Mutoro the new regulations may open the way to prices prone to manipulation from dominance by major players, hence the need for a ceiling price.

This amid low uptake of the LPG in areas outside major towns and ongoing ban of charcoal, cutting of trees and high kerosene prices at Sh104.06 per litre in the latest EPRA review.

“EPRA has been fixing price for fuel but not for LPG. There has to be equivalent pressure to make cooking gas affordable. We need to push for zero rate taxes and have universal service fund is that if areas cannot get the supply of gas then there is supply,” Mutoro said.

The previous exchange system is said to cause more harm than it was meant to create among them disappearance of cylinders from the owners that has discouraged investors.

There are also cases of mushrooming illegal LPG filling plants.

 
 

It is for these reasons that thousands of retail traders in the LPG sector will be required to obtain a license from EPRA to trade.

Small traders will equally obtain the consent and license from the brand owner to sell their gas in a heightened principal-agent relationship.

The law requires them to have weighing machines.

“The licensing is going to reduce competition. The requirement that oil marketer should give a license need to probably be suspended and hence use negotiated compliance of the law so as not to put people out of the business," Mutoro added.

"There's a need for negotiated compliance.  With the new regulations, the marketer may only pick their own retailers leaving out the previous retailers and those dispensing at the kiosks."

The effect is seen to result to reduce supply and affect competition.

The regulations took effect but there was a transitional clause that allowed EPRA to issue a notice suspending the implementation.

They will be fully in force from January 1, 2020.

“There is a need to address the small trader licencing of about Sh1000 and fees which are later transferred to consumers especially in far-flung areas,” Mutoro said.

If this is not going be checked it may raise card of black Market, he added.

EPRA has said the regulation to have a new brand owner begin a business with 5,000 cylinders will remain, but the player will have to prove that their number has grown to about 10,000 cylinders on the second year as well as in subsequent years.

Due to this, some players are expected to exit the market while others join.

Petroleum and gas director Edward Kinyua said the low number tempted players to refill other brand owner's without permission when their cylinders were distribution and hadn't returned.

"The number ensures there will always be afloat of cylinders to a marketer," Kinyua said.

EPRA has also introduced and approved new capacity cylinder of 0.5 Kg meant to serve as a substitute for kerosene to low-income earners, adding to the 1kg, 3kg, 6kg and 13 kg domestic capacity cylinders.

Even then, the universal valves were maintained in the new laws.