The government has approved the procurement of Liquefied Petroleum Gas (LPG) through the Open Tender System (OTS). The decision, made during a Cabinet meeting chaired by President William Ruto, is expected to end the monopoly in the LPG market, increase competition among oil marketing companies (OMCs), and lower cooking gas prices for consumers.
The OTS aims to increase accessibility to affordable LPG for both households and commercial users. The government’s ambitious target is to boost annual per capita LPG consumption from the current 7 kilograms to 15 kilograms and expand penetration from 24% to 70% by 2028.
This system will replace the current model, where individual importers determine markups, leading to higher prices due to limited competition. Instead, under the OTS, suppliers will compete to offer the lowest prices based on agreed terms that include import costs, market conditions, and currency fluctuations.
Stabilizing the Petroleum Sector
The Cabinet’s decision builds on earlier reforms in Kenya’s energy sector, including the government-to-government (G-to-G) arrangement for petroleum product imports initiated in April 2023. The G-to-G deal, involving Gulf countries, has reduced the country’s reliance on US dollars for oil imports by allowing payments in Kenyan shillings.
This has stabilized the shilling-dollar exchange rate at Ksh129, down from a high of Ksh166, and led to significant reductions in fuel prices, with petrol costs falling from Ksh217 to Ksh177 per liter. The arrangement has also alleviated pressure on the monthly dollar demand for petroleum imports, previously estimated at $500 million.
Enhanced Infrastructure and Storage
To ensure a seamless transition to the OTS, the government is collaborating with the private sector to establish a common-user import facility at the Kenya Petroleum Refineries Limited (KPRL) in Mombasa. Existing storage capacity for LPG remains limited, with the government-owned Shimanzi Oil Terminal holding 1,400 tonnes and a smaller facility at KPRL.
The market has been dominated by Africa Gas and Oil Ltd, which manages 90% of imported LPG volumes through its 10,000-tonne storage facility in Mombasa. However, competition is set to increase with new entrants like Taifa Gas SEZ Kenya Ltd. The Tanzanian-owned company is constructing a 30,000-tonne LPG storage facility at the Dongo Kundu Special Economic Zone, although progress has been slow since the project began in February 2023.
Demand for LPG in Kenya continues to grow, increasing by 8% to 360,594 metric tonnes in 2023, according to the Energy and Petroleum Regulatory Authority (EPRA).
Promoting Affordability and Sustainability
The government has also zero-rated taxes on LPG, improving the development of storage and distribution infrastructure nationwide. President Ruto emphasized the need to enhance volumes, sustainability, and affordability to support the sector’s growth.
“A thriving LPG sector promises significant economic benefits, including increased investment and job creation,” said Ruto during the launch of the Liquefied Petroleum Gas Programme for schools at Jamhuri High School, Nairobi.
The move to OTS aligns with Kenya’s broader efforts to reduce the environmental impact of fossil fuels by promoting LPG as a cleaner alternative. The system is expected to attract more OMCs, ending the monopoly that has constrained market growth.
Retail Price Monitoring
While the OTS is designed to lower costs, the government is prepared to implement retail price caps if the savings on landed costs do not translate into reduced prices for consumers. This safeguard ensures that benefits from the system directly reach Kenyan households and businesses.
The government’s commitment to robust policies, regulations, and standards in the LPG sector is expected to guarantee health and safety while driving significant economic gains. By opening the market to more players and leveraging public-private partnerships, Kenya is set to enhance energy security, affordability, and environmental sustainability.
With these reforms, the government underscores its focus on creating a competitive and efficient energy market that supports both economic growth and consumer welfare.
