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TACKLING ILLEGAL REFILLING IN KENYA

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An Interview with Mr. Polycarp Igathe, MD Vivo Energy, Chairman of PIEA

 

Somewhere in the small rural village in Kenya, a woman prepares a meal for her family. She switches on her gas stove and is pleased by the fact that a crisp blue flame begins to bring her stew to a boil. She remembers the days when she would have to struggle in a smoky kitchen, where it was a strain on her eyes and lungs. A single tear rolls down her cheek, not because of the smoke this time but because there is none. The clean blue flame has brought unimaginable change to her life and the lives of many other Kenyans. She is thankful for this change and in this moment she is happy.

 

Initiatives by the WLPGA and PIEA have drastically improved the kitchens of many Kenyan families like hers, replacing traditional fossil fuels such as timber and kerosene with LPG stoves. Their initiatives have helped thousands of households improve their quality of life.

 

Such a blessing is however, under imminent threat. In order to gain profits, an underground network of refilling operations has surfaced all across the country. The problem has slowly begun to threaten the continued provision of clean and safe cooking fuel for all. These illegal refilling stations are making a safe product, far more dangerous than it needs to be, while at the same time preventing the growth of a much needed thriving LPG market.

 

shutterstock_141585919We sat down with Polycarp Igathe, chairman of PIEA and MD of Vivo Energy to give us his thoughts on the developing LPG industry in Kenya and the big problem illegal refilling poses to LPG development in the country. Polycarp Igathe is also the newly appointed Anti-Counterfeit Agency (ACA) Board Chairman.

 

When asked how he manages to find the time for all these diverse roles at once, Polycarp says, “I start my day early; I’m usually in the office by 6am or at some meeting or the other. Extending my day in the morning is big lever in enabling me to juggle multiple roles.”

 

Polycarp told us that he finds his passion for energy from being a Kenyan citizen. He strives to leave his mark on Kenya, ensuring that he leaves his country better than he found it. In this way he is paying his dues to his land and country. To him, energy is the driver of the economy and if he can make a difference here, it will be felt across all sectors and improve the lives of millions.

 

We asked Polycarp, what his goals were with regards to LPG in Kenya?

 

He told us that as far as goals go, he has two. The first being to restore the fidelity of the LPG market in Kenya by reducing illegal filling of gas to below 20% and to do this in partnership with the ERC (Energy Regulatory Commission) and other Government agencies directly involved such as KRA (Kenya Revenue Authority). The second being to expand LPG usage in Kenya by 10 times, from 100,000 tonnes a year
of consumption to a million tonnes a year and to do this in partnership with the Government by switching domestic energy to LPG, away from firewood, charcoal & kerosene. He also hopes to lobby the Government (Ministry of Energy, Health etc) to ensure LPG is affordable to at least 40% of the population and to grow this number year on year, by subsidizing LPG or other means.

 

The fact that there a large amount of people in Kenya still using traditional cooking fuels is one that Polycarp feels should be fixed.

 

He says, “Currently over 80% of Kenya’s population uses traditional cooking fuels and the country’s annual LPG consumption is less than 2kg per capita.”

 

“We lag way behind other African countries who are consuming in excess of 10 kg annually per capita. We must pull up our socks, compared to South Africa, Ghana, Algeria, Cote d’Ivoire, Tunisia, Morocco and Mauritius all have more encouraging LPG penetration numbers compared to Kenya,” he adds.

 

Polycarp told us that the reason for this poor uptake is because investors shun the LPG sector.
He says that investors know they will lose money in LPG under the existing value chain and ecosystem and as such, there has been very low investment in metal cylinders, storage & filling facilities.

 

“The average annual cycle of LPG refill should be 6 times & above but that is hardly the case. In Kenya the LPG refill cycle for legal players is less than once a year while that of illegal fillers can be more than 7 times a year!,” he stresses.

 

“Why would any right thinking investor enter a sector where their investment is used to give returns to others?” he muses. This however, is in its humble beginnings of change. Or at least the seedling has already cracked open and it’s very first roots are beginning to spread. The Kenyan government has been taking LPG as a central theme for their energy needs as seen in their recently published Petroleum Master Plan and recent pronouncements of the ERC.

 

He says, “The Government appears serious in its ‘talk’ and we wait the ‘Government’s walk’ so we can invest and grow penetration. A good start will be to see how they treat duties for LPG in the 2015 Fiscal Budget.”

 

There is still much work to be done to garner further attention to LPG use. Polycarp says that the Government needs to implement the policy that they have just published in Kenya with respect to LPG and do so quickly and with focus. He says that they need to loop in the Ministry of Environment and Natural Resources to encourage usage of LPG to reduce deforestation, and Ministry of Health to reduce respiratory diseases. He also believes that the government should further enhance the profile of LPG by appointing a substantive LPG Commissioner at the Ministry, and an LPG Director at the ERC. He feels that this will drive and accelerate LPG action in Kenya.

 

“Kenya has a very successful fuel Open Tender System (OTS) structure that guarantees us much lower fuel costs compared too many other countries in the region, and a key enabler to this is the Kenya Pipeline Company (KPC) owned Kipevu Oil Storage Facilities (KOSF) in Mombasa. The Government needs to provide similar investment in large LPG import storage facilities in Mombasa to enable import via an OTS structure, of big LPG ships. This will bring down cost of LPG significantly” he says.

 

Polycarp says that uptake of LPG is low due to policy instability . He says that tax policy in Kenya with respect to LPG is blind to the social benefits of LPG relative to traditional fuels.

 

He feels that it’s time we (Kenyans) put duties on kerosene and remove duties on LPG as it will increase access with affordability .

 

We then asked him, what were the major challenges that the industry was facing in Kenya?

 

He answered us saying that there is fear of gas usage among the masses due to a lack of consumer education. The people fear that gas will explode and kill them. There is therefore need for government and the OMC’s to educate the population that gas is safe and clean to use at home if bought from the right channels.

 

He also said that there is currently insufficient incentive to invest in decentralised storage, filling and distribution networks outside the 4 main towns of Mombasa, Nairobi, Nakuru and Kisumu. Other than this the industry is plagued by a handful of other issues such as untaxed LPG imports via Tanzania, players not following the rules of the LPG exchange pool, limited consumer knowledge, inadequate investment in LPG infrastructure (import facility, storage, filling, distribution), a poor LPG tax structure and very importantly – rampant illegal filling.

 

To highlight just how rampant illegal refilling was in Kenya. Polycarp says that 7 out of every 10 cylinders worth of gas sold is illegally refilled gas. He stressed that the situation with regards to illegal refilling is massive and that illegal re-fillers operate all over the country with absolute impunity. Illegal refilling is a big threat to the development of the industry.

 

shutterstock_178225895Polycarp says; “When an industry is taken over by bad actors, good serious investors shun it.” Cylinder explosions that are caused by the improper and unsafe use of them at illegal refilling stations bring risk of serious burns or even death to those living nearby. He says that illegally filled LPG cylinders are often times underweight, and station operators cheat unsuspecting buyers of their cash. In addition illegal filling poses serious safety threats to the country such that it has now become a national security threat. It is a publicly known fact that the lead terrorist in the Garissa University attack was operating an illegal LPG den in Eastleigh area of Nairobi.

 

He cautions that one can be assured there are many more of such threats in illegal LPG filling.

 

There is much work being done to combat illegal refilling.The ACA of which Polycarp is Board Chairman, has been conducting raids and have had the culprits arraigned in courts to face the law. He says that, “Education has also been done to LPG firms to register their trademarks and understand how to lodge complaint at ACA. Last week a big illegal LPG Den was shut down in a joint police ACA, KEBS (Kenya Bureau of Standards) and SGS Kenya Ltd operation in Nakuru.” He adds, “It is sad to note however, that the owners of this den had a fresh license issued by ERC.” He feels strongly that the regulator must up its enforcement game in respect of LPG.

 

We then asked Polycarp what his views were on the future of the LPG industry in Kenya. He said that, though Kenya is far from completely eradicating illegal refilling in the country, he sees a reduction of it from 80% prevalence to below 20%. He stresses that it cannot be done without the nerve and guts of the law enforcement agencies to play their part.

 

He says that with regards to infrastructure, that once the government demonstrates it can enforce law & order in the LPG industry and with a facilitative Policy to grow usage they will likely add more LPG import facilities to their current two. He did say however, that there is no place for LPG in Kenya as a vehicular
or manufacturing fuel in the near future. He says, “We must first fix the basics of normal fuel supply before dreaming of LPG driven cars. Why go for unripe fruits at the top of the tree and leave ripe fruits hanging at the bottom?”

 

Polycarp says further widespread use of LPG will only bring benefits to the nation. There will be new jobs for young people involved in filling, sales & distribution of LPG and a healthy , respiratory disease free population, especially for women who cook with firewood, charcoal and kerosene. There will be a better quality of life for the young children – children will also be able to get a hot meal before going to school in the morning, which is sometimes not possible today when the mothers are not able to light a fire in the morning because the firewood is wet.

 

Polycarp ended off saying that the industry holds a lot of promise – plenty of promise in jobs, GDP growth and energy security . He reiterates that to do this, it is absolutely necessary to overcome the failure of nerve in Kenya’s policymakers and regulators should they want to truly be able to realize the prize.

 

(LPG Business Review)


Polycarp Igathe

 

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