We start on a positive note, Kenya is looking to start controlling the price of cooking gas after the Kipevu Oil Terminal is completed.
The price controls, once effected, will ease the burdens consumers are going through amid unprecedented increase in taxes on different types of commodities. The terminal, which will largely have a common user handling all the fuel is set to be completed in December 2021.
The common-user berth will allow the government to issue an open tender system (OTS) for Liquefied Petroleum Gas (LPG) imports, prompting the shift to control the prices of cooking gas.
According to Edward Kinyua, the Petroleum and Gas Director at the Energy and Petroleum Regulatory Authority (EPRA), the industry regulator will set tariffs for handling the gas at the terminal.
The open tender system will allow the ministry to award one oil marketer the right to import LPS in bulk every month on behalf of the entire industry, much like the case with diesel, petrol, and kerosene.
The absence of a common-user facility at Kipevu has restricted other gas companies from handling the cooking gas imports at the port. Only one company handles over 90 percent of the LPG shipments. The company in question, Africa Gas Ltd associated with Mombasa tycoon Mohammed Jaffer, it doesn’t take a brainer who’s going to win the tender dangled by the state.
As we’ve covered the white elephant in the house here on Nairobi Exposed Kenyans are being held hostage by an intricate web in the energy sector that toy around with minds and livelihoods of many, manipulating the market and raking in billions.
The 13-kilogramme cooking gas that was previously retailing at Sh2,000 now retail for at least Sh2,350. following the introduction of the 16 per cent value-added tax on the commodity, adding to the pain of costly life.
Kenyans have for king been taken in rounds with with the same old lie of cheap cooking gas whose efforts have been thwarted by the might cartels of LPG.
‘Mwananchi Gas’ an ambitious project by the state that was meant to lower the cost of cooking gas for the poor, was hijacked and shot down by the same cartel running the market so they could keep on exploring Kenyans.
The Mwananchi Gas project, launched in 2016 to support poor households have better access to cleaner modes of cooking through the subsidised gas cylinders, burners and grills, is almost dead, and now risks sinking about Sh1 billion spent on the project.
According to the Auditor General’s reports, the project, which was initially to be implemented by the defunct Ministry of Energy and Petroleum beginning 2016, but which was later handed over to the National Oil Corporation of Kenya (Nock), has not achieved its objective to date, as Nock and the State Department for Petroleum derail the process to supply the remaining products to thousands of Kenyans.
Implementation of the Mwananchi Gas Project started in 2017, with purchase of thousands of gas cylinders, burners and grills. However, it would later be revealed that a corruption cartel that reigned over tender deals for supply of the products, resulted in supply of only about 60 percent of the products.
Auditor General Nancy Gathungu, in her audit report for Nock last year, scrutinised the spending of millions of public funds in the project, yet value for money had not been established.
“Records made available by the corporation indicated that a total of 144,092 6kg gas cylinders, 357,360 cylinder grills and 357,336 gas burners valued at Sh539,741,103 were received from the State Department for Petroleum. Of these quantities, the corporation, jointly with the State Department for Petroleum inspected and certified the use of 45,797 cylinders, 40,484 gas burners and 114,680 grills with an aggregate value of Sh56,419,124.
“The remainder of the items had not been included in the agency’s financial statements and the management has attributed the omission to lack of formal authority from the State Department for Petroleum to transfer ownership of the items to the corporation,” Ms Gathungu stated in her 2018/19 Nock audit report.
This was out of the 150,768 gas cylinders, 272,567 grills and 357,355 burners that were supplied to the State Department in 2017.
By June 30, 2018, the state department had spent a total of Sh870,339,283 on the project, that also included the purchase of 161 40-foot containers for storage and subsidised refilling of the gas cylinders.
But now, responding to last year’s audit queries, the Nock management blames the state department for failing to communicate how Nock was supposed to handle the products after the 2018 handing over of the project, for the delays in distribution.
“The corporation received Mwananchi gas cylinders and accessories in FY2017/18. Since there was no clear communication from the Ministry of Energy and Petroleum on how the corporation was to treat the Mwananchi gas cylinders and accessories, the cylinders and accessories were accounted for in the books as an asset (inventory) with a corresponding liability,” the management says.
Nock says it has unsuccessfully tried writing to the state department seeking ownership of the project.
“Management wrote a letter to the ministry, making recommendations to address the ownership and management of cylinders and accessories, and a second letter addressing the price buildup and subsidy applied on the cylinders and accessories. This was intended to ensure that the ministry transfers ownership of the cylinders to National Oil and that the ministry also gives concurrence on the pricing of the cylinder and accessories. Approval was given by the ministry to apply a subsidy of 65 percent on the landed cost of the cylinders and accessories in the buildup of the prices to the end users with overall concurrence on the proposed price of Sh2,150 for a complete cylinder set. (Letter reference MOPM 68B/3/2/Vol IV dated October 11, 2018),” states the management.
The corporation says the ministry has not responded to its request through a letter dated September 11, 2018, asking to have full ownership and custody of the products, after the project was transferred to it.
This, according to Nock, has been the reason the project was shelved, even as millions of poor households that ought to have been helped through distribution of the gas cylinders and accompanying clean cooking equipment, continue to cook using paraffin, firewood, charcoal and other harmful means.
According to previous auditor general reports, the defunct ministry in May 2017 contracted 10 firms to supply various components of the project, at an aggregate cost of Sh999,975,230.
The initial order was for the supply of 357,355 gas cylinders, burners and grills for each component. However, out of the 357,355 gas cylinders ordered, only 150,768 were delivered, only 272,567 grills were delivered, while all the 357,355 gas burners ordered were supplied.
“Out of the 150,768 cylinders supplied, only 66,103 had been inspected and an undisclosed number distributed to consumers in two counties. An estimated 88,165 cylinders were held at National Oil Corporation Stores in Nairobi pending inspection and certification for conformity with the supply requirements,” stated the Auditor General’s report for the state department in 2017/18.
Even among the gas cylinders that were delivered, many among those inspected by Nock and the state department were confirmed to have been faulty, leading to loss of millions of public funds.
“One of the two suppliers contracted to supply 148,898 cylinders delivered 23,873 cylinders in July 2017 at a cost of Sh52,496,727 but 15,350 of the cylinders valued at Sh33,754,650, equivalent to 64 percent of the number supplied, were found to be faulty,” the 2017/18 audit report stated.
As things stand, the project mooted to save poor households from respiratory diseases due to exposure to harmful cooking fuels, will go down as just another avenue that corruption cartels used to amass millions of public funds through rogue means, as many poor Kenyans burdened by high gas refilling prices slide back to the use of harmful fuels.
How Mohamed Jaffer Greedy Schemes To Monopolize LPG Killed Cheap Gas For The Poor Project
When Government announced a subsidized gas project in October 2016, it brought a ray of hope for Kenyans who often relied on firewood and kerosene, two energy sources that are not only inefficient but had them breathing in toxic fumes.
Mwananchi Gas project was to sell under the Gas Yetu brand and was meant to safeguard the poor from respiratory diseases caused by the use of firewood for cooking. It was also meant to contain the rampant destruction of forests.
In 2017 Gas Yetu was allocated Ksh2.2 billion for the period 2017-2019. A further Ksh700 million was allocated through a supplementary budget raising the total cost of the project to Ksh2.9 billion.
The project would have seen millions of households receive subsidized 6kg cooking gas cylinders at a cost of Ksh2,000.
5 million households were targeted with the Gas Yetu cylinders fitted with burners and grills.
The beneficiaries would refill them at a cost of only Ksh840 per cylinder.
This was however not to be. 2 years since it was launched Energy and Mining Principal Secretary Eng. Joseph Njoroge says the government shelved it due to budget issues.
However, an investigation into what led to the collapse of the project reveals a well-calculated plan by Pro Gas owner Mohammed Jaffer to kill Gas Yetu.
It all started with a contract awarded by the Petroleum Ministry and the National Oil Corporation of Kenya (Nock) to a consortium led by Allied East Africa Ltd.
Having gotten the tender, but with no capacity to deliver, the consortium turned to Mohammed Jaffer owner of Africa Gas and Oil (AGOL) which also owns Proto Energy Limited under which Pro Gas is sold.
The company was then just beginning and was virtually unknown in the country.
Jaffer had however managed to obtain a lease for use of a cylinder pressing machine from KPA in a shady deal that seems to have been orchestrated by officials from the Energy Ministry.
The fraudulent suppliers, in the first batch, delivered faulty cylinders raising questions about quality assurance and monitoring of the manufacturing process.
A total of 67,251 cylinders were found to be leaking posing a serious safety hazard had they gone into circulation.
This, however, seemed to be part of the grand plan to kill the project as then PS Andrew Kamau canceled the tender purchase order of 357,000 cylinders despite money having been paid out to East Africa Allied and Mohammed Jaffer.
The PS also canceled another purchase order of 700,000 cylinders with little explanation as to how the total budgetary allocation that had risen to Ksh2.9 billion had been spent.
This necessitated Consumers Federation of Kenya (COFEK) to sue Government in October 2018.
COFEK told court the Government’s ambitious program to buy and supply 5 million subsidized gas cylinders to low- and middle-income households by end of 2019 were in jeopardy as 60% of the cylinders delivered were faulty.
As Kenyans continued wondering why the Gas Yetu project is not taking off despite the immense benefits it would have afforded them, a new player in the market was beginning to emerge.
With its bright pink colored cylinders, Jaffer’s Pro Gas was starting to penetrate into the market offering gas cylinders at cheaper rates than competitors.
Pro Gas with the help of Energy CS Charles Keter, PS Njoroge and other corrupt government officials at the Energy and Petroleum Regulatory Authority (EPRA) and Kenya Revenue Authority (KRA) continue to engage in illegal and unfair trade practices to gain an edge over competitors.
Through use of intimidation tactics and sabotage, Pro Gas has been hiring thieves in hoods to steal cylinders from competitors resulting in millions of shillings in losses.
On June 20, 2019 at Southernsun, Mayfair Hotel in Nairobi, members of the LPG Cylinder Exchange Pool lamented the unfair practices by Pro Gas. Minutes of the meeting also indicate that members voted for pricing formulas with majority preferring cylinder cost minus validation cost to remain competitive.Mohamed Jaffer.
However, EPRA went against the norm and published new rates. In a public notice issued July 25, 2019, EPRA announced a new deposit rate of Ksh2,170.03 for the 6kg cylinder and Ksh 3,588.86 for the 13kg cylinder.
These rates according to members of the exchange pool are in bad faith and are bound to resort in massive losses.
Despite numerous complaints to EPRA, no action is taken against Pro Gas.
Exchange Pool members now say they have evidence that PS Njoroge has been receiving Ksh30 million monthly in bribes while other officials at EPRA led by the Director-General Robert Oimeke pocket not less than Ksh10 million each month.
This is also the case at KRA with senior officials receiving millions of shillings monthly to turn a blind eye to Jaffer’s indiscretions.
The tycoon has also pocketed a significant number of MPs ensuring that any parliamentary committee investigations go his way.
To date, there have been more than five investigations on the unfair monopoly by his companies including Grain Bulk Handling Limited (GBHL) but no action has been taken.
Through bribery, Jaffer has now completely taken over the imports, distribution and retail business in the LPG sector undercutting other companies and driving them out of business altogether.
Suits filed in Court against Pro Gas, Energy Ministry and EPRA are often thrown out as he bribes witnesses and threatens anyone who comes in his way.
Photos taken at the main Pro Gas yard in Kabati shows they have been stockpiling the stolen cylinders there from where they are washed, repainted and rebranded into the signature bright pink color. They are then refilled and distributed to Kenyans at very low prices dealing a huge blow to competitors.
In October 2018, at the height of the Gas Yetu scandal, DCI George Kinoti said he will begin investigations into the loss of billions.
“We will initiate a probe. We cannot allow a program that is funded by taxpayers to put Kenyan citizens at risk,” said Mr Kinoti.
Over one year later though, no investigations have been done and no one has been taken to court over the scam raising questions about how many agencies are on the take from Mohammed Jaffer.
This as 80% of Kenyans who use firewood and kerosene continue to suffer at the hands of cartels at the Energy Ministry.
Monopolistic grip
Despite implementing fiscal policies, subsiding cylinders and going to the extent of launching a cooking gas programme to make gas affordable to the common man, industry players contend that ceding the bulk importation of LPG to Africa Gas and Oil Ltd has denied the country the benefits of cheap cooking gas.
To date, Africa Gas, which is partly controlled by Jaffer who is also the owner of Grain Bulk Handlers, imports 90 per cent of the LPG consumed in Kenya and also controls a significant transit market to neighbouring countries.
The remaining 10 per cent is brought to the country by smaller shipments that discharged into oil marketing companies terminals located at both the Shimanzi Oil Terminal and at Mbaraki Jetty.
“Africa Gas Ltd has a monopolistic grip on the LPG market because it owns bulk import and storage facilities. This has denied Kenyans the benefits of cheap cooking gas,” said an industry player on condition of anonymity.
The fact that Kenyans are not significantly benefiting in terms of cooking gas retail prices is evident considering that despite a significant decline in prices at the international market, locally the prices have remained largely unchanged.
In the latest update in his expansion, Proto Energy which is associated with Jaffer snapped up a rival cooking gas company for an undisclosed sum in the latest dealers’ race for a larger market share of the liquefied petroleum gas (LPG) sector.
Proto Energy, is the maker of Pro Gas and has now received regulatory approval to buy out Solutions East Africa, whose LPG products trade as SeaGas.
The buyout is expected to see the Mombasa business mogul firm its grip in the lucrative cooking gas market.
With Jaffer now controlling over 70 pc of the gas market in Kenya, the monopolistic grip is tight, the dangers unseen. This a possible matter of national security.
That a private company controls bulk importation has made it impossible for Kenya to introduce price controls on cooking gas similar to those introduced on diesel, petrol and kerosene costs in 2010. That a private firm is at a position where it can manipulate the market and cause an artificial shortage of gas.
No reprieve soon.
So deep-pocketed and well-connected is the monopoly that controls imports of liquefied petroleum gas (LPG) that no new player seeking to enter the industry gets past endless government bureaucracy, Petroleum and Mining Principal Secretary Andrew Kamau told lawmakers last month.
The sabotage by government regulatory agencies in granting the necessary approvals for setting up large-scale LPG storage facilities is so significant, he said, that he knows only one firm that has recently received an environmental impact clean bill of health from the watchdog Nema.
Mr Kamau appeared before the National Assembly’s Finance and Planning Committee to explain the sharp increase in fuel prices in the last review.
“I know of six foreign companies that have for long wanted to come to invest in the country in LPG and build storage facilities but they cannot even get past Nema,” he told lawmakers.
“The only company that has so far managed to get approval from Nema is Oilibya (now Ola Energy) but it’s still yet to get approval from other regulatory agencies.”
A day before, the energy regulator had revealed to MPs that the bulk of the cooking gas used in Kenya comes via Tanzania through the ports of Dar es Salaam and Mombasa.
Energy and Petroleum Regulatory Authority (Epra) Director-General Daniel Kiptoo said that much of the gas consumed in Kenya is supplied by one investor, adding that the landed cost of LPG in Dar is $830 (Sh913,000) per tonne and $960 (Sh105,600) in Mombasa.
LPG consumption
This means that cooking gas is imported at about Sh91 per kilogram or Sh547 per 6kg cylinder. But the cylinder retailed for about Sh950 before the introduction of the 16 per cent Value Added Tax (VAT) on the product, a cool Sh403 margin on a single cylinder.
An Epra report shows local LPG consumption has grown exponentially from 77,000 tonnes in 2007 to 400,000 though a large section of the population is yet to be tapped – 55.1 per cent of Kenyans use firewood for cooking.
But the government maintains that it is too soon to regulate LPG prices – as is the case with petrol, diesel and kerosene – arguing that setting price controls for the product will inhibit investment in the sector.
“The (LPG) terminal in Mombasa was opened in 2012 and it was a purely private investment. We are yet to reach a point where the government has to step in and put price controls on LPG because this will deter investors from coming into the sector,” Mr Kiptoo said.
“To start regulating LPG we would have to bring its importation into the Open Tender System (OTS) framework and build a common user facility.”
Africa Gas and Oil Ltd (AGOL) owns the Sh12.5 billion, 10,000 tonne LPG storage facility that handles more than 90 per cent of the imported LPG, with smaller players paying to use it, while the government-owned Shimanzi Oil Terminal has a 1,400-tonne capacity.
MPs wondered why the government has not built a State-owned common user storage facility for LPG, leaving consumers heaving under high cooking gas prices set by the monopoly.
“Why have you allowed this monopoly to continue setting LPG prices… Why can’t the government set a maximum price for LPG as is the case with fuel?” posed Luanda MP Chris Omulele.
100,000 tonnes
The government says the $500 million (Sh55 billion) Kipevu Oil Terminal II is slated to be completed in December, with a line for discharge of LPG, and that will increase its stake in the cooking gas market and help reduce prices.
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“We will complete construction of a holding facility for LPG by the end of the financial year that will help new players to enter the market and will help to reduce the prices of LPG,” Kenya Pipeline Company Managing Director Macharia Irungu told MPs.
But AGOL further raised its stake in the market last year through a massive multibillion-shilling upgrade of its own storage facilities to 25,000 tonnes, enabling it to handle up to 100,000 tonnes per month.
The upgrade made it the largest terminal in sub-Saharan Africa, further extending the company’s position at the apex of the LPG sector in Kenya.
Kenyans continue to feel the pinch of steep cooking gas prices with outlets charging Sh3000 to refill a 13kg cylinder.
Some said the price to refill a 13kg cylinder from one of the major brands had hit Sh3,800 in Busia County.
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