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The government has greenlit the procurement of Liquefied Petroleum Gas (LPG) via the Open Tender System (OTS), a decision expected to break the industry’s monopoly and reduce cooking gas costs.
During a Cabinet meeting at State House Nairobi, chaired by President William Ruto, it was also approved to import heavy fuel oil and bitumen through a centralized bulk procurement system.
However, petroleum products will continue to be imported under the Government-to-Government (G-to-G) arrangement with the Gulf, as the Cabinet extended the deal, which has been in place since April 2023.
The deal has eased the monthly dollar demand for petroleum imports, helping stabilize the shilling-dollar exchange rate at Sh129 from a high of Sh166, and reducing fuel prices from Sh217 per liter to Sh177. The agreement also ensures a steady supply of refined petroleum, with payments now made in Kenya shillings, which was previously estimated at $500 million per month.
Introducing LPG into the Open Tender System could prove to be one of the most important decisions for the energy sector, as the government plans to increase annual LPG consumption from 7kgs per capita to 15kgs and raise penetration from 24% to 70% by 2028.
The OTS aims to offer both commercial and household consumers access to cheaper gas, supporting the government’s efforts to reduce reliance on fossil fuels. Under this system, bidders compete to offer lower prices based on agreed terms and conditions, considering import costs, market prices, and local currency factors, unlike the current model where importers set their own markups, leading to high prices due to lack of competition.
The government is collaborating with the private sector to set up a common-user import facility at the Kenya Petroleum Refineries Limited (KPRL) in Mombasa, according to President Ruto. If lower import costs do not result in reduced retail prices, the government may consider implementing retail price caps.
President Ruto highlighted that zero-rated taxes on LPG have enhanced storage infrastructure across the country. He emphasized that addressing volume, sustainability, and affordability is crucial for the sector’s growth, which he believes could offer significant economic benefits, including job creation and increased investment.
The OTS is expected to attract more interest from Oil Marketing Companies (OMCs), ending the current monopoly where Africa Gas and Oil Ltd handles up to 90% of LPG imports, using a 10,000-tonne storage facility in Mombasa.
Tanzanian company Taifa Gas SEZ Kenya Ltd is also planning to build a 30,000-tonne LPG storage facility at the Dongo Kundu Special Economic Zone in Mombasa, although its implementation has been slow since starting in February last year. Additionally, the government-owned Shimanzi Oil Terminal has a 1,400-tonne capacity, with another smaller facility at KPRL.
LPG demand increased by 8% in 2023, reaching 360,594 metric tonnes, according to data from the Energy and Petroleum Regulatory Authority (EPRA).
