Kenya plans to overhaul the consumption of liquefied petroleum gas (LPG) with sweeping policy changes that promise to halve prices and deliver cooking gas to homes through a network of pipes.

The move which is aimed at transforming the energy landscape and fostering affordability in Kenya will leverage a network of pipes, known as a reticulated gas system.

These changes together with removal of taxes will  lead to a rapid growth in LPG consumption in a move that started in 2019, to help attract investments in the sector, according to S&P Global.

A Cabinet memo says that President William Ruto’s administration is now positioned to make affordable and clean energy a cornerstone of the nation’s progress.

“As part of our LPG growth policy, a framework requiring all housing developments to have provisions for LPG reticulation structure shall be implemented,” the cabinet said in a memo.

As these transformative policies take shape, the ripple effects are expected to be felt not only in the energy sector but also in the broader context of economic development and environmental sustainability.

“Kenyans are paying twice as much as they should for LPG,” said Energy CS Davis Chirchir.

Cooking gas in Kenya is currently sold in cylinders ranging from 3kg to 50kg. Piped gas is commonly used in South Africa and Egypt.

According to S&P Global, LPG consumption has grown rapidly in Kenya in recent years as import and distribution infrastructure has improved; however, market penetration remains very low.

“Beyond 2030, as GDP grows and household income improves, we expect per capita LPG consumption growth to accelerate, reaching 8-9 kg per person by 2050,” says S&P.

Faster growth

Much faster growth could be achieved with lower pricing, either through greatly improved efficiency, or a subsidy programme.

“We expect LPG import capacity will outpace domestic consumption growth, allowing Kenya to become an import hub for the region, exporting some LPG over land to neighboring countries with limited alternatives for supply,” says the global market research firm.

The initiative, part of the LPG growth policy’s proposed regulations, is set to redefine the country’s energy sector and accelerate the transition to cleaner energy sources.

Under the new framework, housing developments, including those falling under affordable housing projects, will be required to incorporate provisions for LPG reticulation infrastructure as a prerequisite for approval.

The move is expected to impact on the accessibility and affordability of LPG, a crucial step in the government’s commitment to making clean energy available to a broader section of the population.

Energy CS, Davis Chirchir emphasized that Kenyans have been burdened with inflated LPG prices, paying twice as much as they should. He revealed that a staggering 75 per cent of LPG in Kenya is imported by a single player, a situation that is poised to change with recent developments.

President William Ruto’s commissioning of a new gas plant is anticipated to be part of the  game-changing move, heralding a shift towards diversified LPG sources and reducing reliance on a single importer.

As part of the comprehensive strategy, the government has announced plans to abolish all taxes on cooking gas and cylinders.

The move is seen as a pivotal step in making LPG more affordable to a wider spectrum of households, aligning with the administration’s commitment to clean energy and sustainable development.

In a Cabinet dispatch on Monday, it was revealed that the proposed tax cuts include the removal of taxes on locally manufactured cylinders, on LPG products, and on the cost of cylinder revalidation.

Currently, the only tax imposed on LPG is the Petroleum Development Fund Levy at a rate of Sh0.40 per kilogramme, while LPG cylinders are subjected to a multitude of taxes, including an 8.0 percent Value Added Tax (VAT), a 3.5 percent Import Declaration Fee, and a 2.0 percent Railway Development Levy.

The removal of these taxes is expected to significantly reduce the overall cost of LPG for consumers, making it a more attractive and feasible energy option for households. This aligns with the government’s broader vision to promote a cleaner and more sustainable energy mix while addressing the economic burden on citizens.

The proposed tax cuts, coupled with the mandatory inclusion of LPG reticulation infrastructure in housing developments, signal a paradigm shift in Kenya’s energy sector.

The government’s commitment to diversifying LPG sources, introducing market competition, and fostering affordability underscores a strategic approach to not only meet immediate energy needs but also to pave the way for a greener and more sustainable future.

Industry experts believe that these measures will not only make LPG more accessible to a larger portion of the population but also stimulate economic growth through increased investments in the sector.

The government’s focus on creating an enabling environment for clean energy solutions aligns with global efforts to mitigate climate change and promote sustainable development.

LPG consumption began growing rapidly from a very small base in 2014, and by 2017 consumption in the residential/commercial sector had tripled from 2013 levels to about 124,000 metric tons. Still, this translated to only about a 0.7% share of the overall fuel mix.

Rapid demand growth continued in 2018-19, with demand nearly doubling again to 217,000 metric tons. The COVID-19 pandemic interrupted this trend in 2020, but we now expect that growth will rebound in the coming years.