Investing in the LPG business in East Africa

East Africa is positioning itself as a key investment hub for various high-grade investments. The latest deal brokered is the construction of a 30,000 metric tonne storage Liquefied Petroleum Gas (LPG) plant in Kenya by Tanzanian billionaire. CNBC Africa spoke to Mwendia Nyaga for more in the wake of definitive policy adjustments to hand tax breaks to LPG manufacturers. The issue about taxes on LPG has been rather up and down, but the general consensus has been that it would be good if action was taken to keep the LPG prices to consumers as low as possible. This move comes after a recent decision by Kenya's President William Ruto to remove all taxes on LPG gas, aiming to encourage the adoption of LPG over traditional fuels such as charcoal and wood fuel. Since 2016, LPG had been exempted from VATs imposed on other fuels, but in 2020, a new Finance Bill was passed removing the VAT exemption for LPG, subjecting it to a 14 per cent tax rate. However, with the latest development, the tax breaks are set to be reintroduced, potentially impacting the market dynamics surrounding LPG in East Africa. The recent initiative to set up a 30,000 metric ton storage LPG facility in Kenya is expected to have a significant impact on the market. Previously, Kenya's LPG import facilities were limited, with small vessels offloading minimal quantities at a time. The new facility aims to address the need for a common user, shared import facility to boost competition and lower costs in the market. The move could potentially lead to a drastic reduction in the prices of LPG in Kenya, making it a more affordable option for consumers. The facility is a part of the broader goal to increase the usage of LPG by 13 kg in Kenya by 2030, a target that seems achievable given the progress made in LPG adoption over the years. In terms of market competition, LPG currently faces limited rivalry in East Africa. Electricity is not a significant competitor due to its high costs and unreliable supply in some regions. LPG's main competitors are traditional fuels like wood and charcoal, which still hold a significant market share. However, with the right infrastructure and policy support, LPG has the potential to become the dominant fuel choice in the region. Importantly, Tanzania, a key player in the East African market, relies heavily on imported LPG, and the new developments in Kenya could potentially lead to a shift in supply dynamics. As Kenya establishes more efficient LPG import facilities, the reliance on imported LPG from Tanzania may decrease, benefiting both countries economically. The push towards promoting LPG adoption in East Africa is an essential step towards sustainable energy practices and reducing environmental impact. With the right policies and investments in place, LPG could serve as a cleaner and more efficient alternative to traditional fuels, benefiting both consumers and the environment. The recent developments in Kenya, including the removal of taxes on LPG and the construction of new storage facilities, signal a positive trajectory for the LPG market in the region, with the potential to transform the energy landscape in East Africa.