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[February 05, 2014]
ERC mulls bulk cooking gas import to ease price surge [Business Daily (Kenya)]
(Business Daily (Kenya) Via Acquire Media NewsEdge) The energy sector regulator may require oil marketing companies to collectively import cooking gas through the open tender system (OTS) as a strategy to check escalation of prices of the commodity.
Buying cooking gas through the OTS, similar to the method used to import petroleum, could help to reduce retail prices of the commodity by negotiating favourable bulk import discounts and shipping charges other than the current situation where each oil marketer imports its own loads.
Cooking gas prices have shot up to a two-year high of Sh3,000 per 13-kilogramme cylinder driven by imposition of value added tax on the commodity late last year.
"This (OTS) would help us get better rates for flight and premium than individual importers are getting now," said Linus Gitonga, director of petroleum at Energy Regulatory Commission (ERC).
The OTS would, however, require completion of the bulk gas storage facility currently in final stages of construction.
The bulk gas storage facility at the Coast, which has been put up by Africa Gas and Oil Ltd (AGOL), has a capacity of 14,000 metric tonnes of gas.
"We might use the facility, and other existing ones, to do the Open Tender System for LPG," said Mr Gitonga.
An OTS arrangement similar to the one in place for petrol imports allows one marketer to import Kenya's monthly gas in bulk on behalf of their rivals hence lowering import costs.
READ: VAT pushes cost of cooking gas to two-year high Mr Gitonga said that the use of the bulk facility is, however, optional for the oil marketers, saying that ERC would not force any of the marketers to shut down their own gas storage facilities.
According to Mr Gitonga, the commissioning test on the facility had been done, with only the handling fees and procedures by marketers using the facility yet to be negotiated.
He added that once the bulk storage facility is open, demurrage costs paid by importers for delays in offloading cooking gas at Mombasa port would reduce significantly.
Demurrage are the penalties that the marketers pay shipping companies when tankers fail to offload in scheduled time due to a lack of storage.The old import terminal at Shimanzi in Mombasa has a capacity of just 1,400 metric tonnes.
Efforts to get comments from petroleum marketers on the issue were unsuccessful as they had not responded to the Business Daily queries by the time of going to press.
The OTS is seen by experts in the petroleum industry as a positive step for gas consumers, especially since the purchase is done by the lowest bidder.
"OTS for LPG shall allow competitive tender sourcing, and also provide economies of scale on freight costs due to large size of imports. It is highly recommended since it is efficient sourcing," said director at Petroleum Focus Consultants George Wachira.
It also allows small players in the gas industry to thrive by giving them a platform on which to make imports that they would otherwise not afford.
"Smaller companies are able to purchase small quantities of their requirements which would not have been possible if they were to import on their own. This benefit comes as a result of pooled purchases under the OTS," said Oil & Energy Services chief executive Mwendia Nyaga.
He added, however, that the implementation of OTS alone cannot stabilise retail gas prices because the main determinant is international market prices, noting that OTS could only ensure marketers get the best available price on the day of purchase.
The Ministry of Energy had raised the option of the gas OTS last year, but talks with oil dealers hit a headwind over disagreements on the rates they would pay AGOL for use of the facility.
The firm was demanding a fee of $207.65 (Sh17,754) per metric tonne on its new facility, but the marketers pointed out that the fee was higher than the average of $70 (Sh6,020) inclusive of demurrage that they were paying at the smaller facility at Shimanzi.
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