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Are gas dealers cheating Ugandans?
A consumer buys gas at a retail cooking gas station in Kibuli, a suburb in Kampala yesterday. Cooking gas is becoming increasingly popular in urban households. PHOTO BY Eronie Kamukama
What you need to know:
Unpolluted. Cooking gas is now seen as a clean source of energy.
Kampala. Ms Sarah Lutaaya, an employee in one of the corporate companies in Uganda started using liquefied petroleum gas (LPG) for cooking about four years ago.
She attributes her love for LPG also known as “cooking gas” to its seamless, clean energy. Compared to charcoal, Ms Lutaaya says, “cooking gas” is far more efficient and safer to use.
“I have a 13 kg cylinder which I refill at Shs110,000 once in about four months. This is possible because I ration it,” she adds.
Given the advantages, Ms Lutaaya still endures the high cost. She says: “I think if the price is reduced at least by half, I will be able to use LPG without rationing.”
LPG is increasingly becoming the preferred energy source for most households in urban settings.
This is because it is convenient to use and emits clean energy.
However, compared to neighbouring Kenya, Rwanda and Tanzania, consumers in Uganda pay almost twice more than what their regional counterparts pay.
For stance, on average, a 13 kilogramme cylinder refill in Uganda costs between Shs110,000 and Shs130,000.
Yet in Kenya a customer parts away with Shs72, 000, and in Tanzania, a refill goes for Shs42,000 while in Rwanda it is at Shs52, 000.
Mr George Omondi, an LPG consumer in Kenya, told this newspaper that the price disparities are as result of removal of Value Added Taxes (VAT) on LPGs.
“Because of the zero-rated product prices drastically went down to about Ksh2, 000 (Shs72,000) for refilling a 13-Kg cylinder following government’s removal of VAT on LPG last year,” Mr Omondi adds.
Players involved
There are multiple brands and companies that supply cooking gas in Uganda. Among them are Vivo Energy (Shell), Hashi Energy, Total, Kobil/Kenol, Oryx, Mpishi and Hass.
Brands such as Total and Shell have supplied homes with domestic gas for a very long time becoming household names while some players are relatively new to the Ugandan market. These include: Hass, Mpishi, Oryx, Hashi, PET Gas, MOGAS LPG, Camel Gas, Lake Gas, and WES Gas. Regardless of being relatively new, these players have grown huge user bases and commercialised the use of gas.
Industry experts largely attribute the price disparities to market forces, tax cuts and freight costs involved.
Mr Peter Ochieng, the managing director at Hashi Energy – a company also dealing in LPG business in Uganda, said in an interview earlier in the week: “The price disparity in the region is brought about by a couple of reasons, including the fact that the Ugandan market is driven by forces of demand and supply. This makes the prices very competitive in the region.”
Industry watchers also attribute the high cost of LPG here to the country’s lack of access to the seaport. Transporting LPG from Mombasa to Kampala adds extra cost which is incurred by the final consumer, something that is not the case with Kenya or Tanzania.
With a more than 1,150 kilometre stretch from Mombasa to Kampala, the freight cost incurred in transporting a metric tonne of LPG is no less than $185 (Shs662,000).
This contributes to the final price a consumer pays.
This coupled with refilling cost, approximated at about $60 (Shs214, 800) per metric tonne, the consumers are further burdened as they ultimately pick that up in the cost involved.
Vivo Energy (Shell) managing director Hans Paulsen, said: “Unlike in Kenya where the VAT was scrapped, and in Rwanda where the market is heavily regulated, in Uganda both the LPG gas and the cylinders do attract an 18 per cent tax.”
The other aspect industrial watchers say that contributes to low prices in neighboring countries – mostly Kenya is that nearly 60 per cent of LPG and the cylinders sold in the Kenyan market are being refilled by “illegal refillers/depot.
“Illegal LPG depots do not invest in the cylinders and operate under very unsafe and funny environment. And for that their costs are minimal and therefore the major industry players such as Hashi Gas, Total and Shell Gas cannot compete,” Mr Ochieng said.
He continued: “We invested heavily in our facilities and products and for that our operation costs are higher.”
Mr Omondi also concurs with this act of so many unlicensed LPG vendors in Kenya.
“To beat petrol stations and other licensed LPG retailers, the informal ones have to offer their products at lower prices making them even more easily accessible.
However, the danger is any time you hear that gas exploded it is always from the unlicensed vendors,” he said.
Consumers too revealed that this act of illegal refilling in Uganda is steadily picking up.
It estimated that there are more than 30 illegal refilling dens in the country.
Mr Ochieng’ s request is for government to scrap the VAT imposed on LPG and if this is done then the prices will go down and more people will be able to afford the product.
Unfortunately, this may be hard because of this means LPG prices in Uganda will remain high unless government revisits its policies.
Environmental concerns
According to the 2012/13 Uganda National Household Survey, three quarters of households in Uganda use firewood for cooking while one in every five households (21 per cent) use charcoal.
Combined, biomass fuels constitute the main fuel for cooking for 96 per cent of the households.
Majority of households in urban areas use charcoal for cooking (54 per cent) compared to households in rural areas (8 per cent).
Use of electricity for cooking was negligible in both rural and urban. The disaggregation of households by region and sub-region reveals that across all the regions and strata, majority of households used biomass fuels.
Because of this, records from National Environment Management Authority (NEMA) show that Uganda loses 80,000 hectares, up from 50,000 hectares of forest annually.
Ms Naomi Karekaho, the communications manager at NEMA, says they advocate for increased use of clean energy such as LPG in Uganda.
“Increased use of LPG will cut back on the number of trees used to make charcoal and firewood in the country. This is something NEMA has been advocating for,” Ms Karekaho said.
However, Mr Henry Kimera, the executive secretary at Uganda Consumer Education Trust, says other countries are promoting alternative energy use to save and conserve the environment in particular forests.
“In Uganda policies don’t talk to each other. Environmental policy will look at gas as clean alternative energy to promote it for consumers use but it won’t be reflected in taxation policy. This will not stop the high cost of product,” Mr Kimera observes.
Consumption drive
According to the Energy ministry, consumption of LPG in Uganda increased from about 1,000 cubic metres (cm3) in 1994 to 8,000 (cm3) in 2010, the most recent year for which such data is readily available.
The increase is attributed to urbanisation and more Ugandans transitioning into the middle class. Uganda imports LPG from the Middle East, via Mombasa, Kenya.
A source from the ministry who preferred not to be named for not being the official spokesperson, said the process to carry out a study on how government can promote LPG use in the country is ongoing and if all goes well the report will be ready in six months.
“We recently evaluated the best bidder for the study and we think if all goes well by next month (March) the selected consultant will commence work,” the source shared.
The study will look at issues on how government will promote LPG as a clean energy to avert environment degradation.
13kg
capacity of a cylinder whose refill costs between shs110,000 and shs130,000 depending on the dealer
