Lower Fuel Prices Expected as State Approves Open Tender for Imports.

The Kenyan government has approved the procurement of Liquefied Petroleum Gas (LPG) through the Open Tender System (OTS) in a strategic move aimed at breaking the monopoly in the sector and reducing the cost of cooking gas for consumers.

During a Cabinet meeting chaired by President William Ruto at State House, Nairobi, the government also approved the centralized bulk procurement of heavy fuel oil and bitumen. However, petroleum products will continue to be imported through the Government-to-Government (G-to-G) arrangement with Gulf nations. This deal, extended by the Cabinet, has been in effect since April 2023.

According to a statement from the Presidency, the G-to-G framework has eased the monthly demand for US dollars for petroleum imports, stabilizing the shilling-dollar exchange rate from Ksh166 to Ksh129 and reducing pump prices for petrol from Ksh217 per liter to Ksh177. Payments under this system are made in Kenyan shillings, eliminating the need for an estimated $500 million in monthly dollar purchases.

Transitioning LPG procurement to OTS is a key step in the government’s energy sector reforms. This initiative aims to boost annual LPG consumption from 7kg per capita to 15kg and expand penetration from 24% to 70% by 2028. The OTS model is expected to create competitive pricing by incorporating import costs, market trends, and local currency factors, allowing bidders to offer more affordable rates. This will replace the current system, where a lack of competition often results in inflated consumer prices.

President Ruto highlighted that private-sector collaboration is underway to establish a common-user import facility at the Kenya Petroleum Refineries Limited (KPRL) in Mombasa. He also noted that if reduced import costs do not translate to lower retail prices, retail price caps may be introduced.

Additionally, zero-rated taxes on LPG have enabled nationwide improvements in storage infrastructure, critical for increasing volumes, sustainability, and affordability. The President affirmed that robust policies, regulations, and safety standards are in place to support the sector’s growth.

“A thriving LPG sector promises significant economic benefits, including increased investments and job creation,” President Ruto said during the launch of the LPG Programme for schools at Jamhuri High School in Nairobi.

The introduction of OTS is expected to stimulate interest from Oil Marketing Companies, effectively ending the dominance of Africa Gas and Oil Ltd., which currently handles up to 90% of LPG imports. Meanwhile, Taifa Gas SEZ Kenya Ltd, a Tanzanian-owned firm, is constructing a 30,000-tonne storage facility at the Dongo Kundu Special Economic Zone, although progress has been slow since the project began in February 2023.

Kenya’s demand for LPG increased by 8% to 360,594 metric tonnes in 2023, according to data from the Energy and Petroleum Regulatory Authority (EPRA). The government’s ongoing efforts aim to meet this growing demand while reducing carbon emissions and supporting economic growth.