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Tanzanian tycoon gets nod for Kenya cooking gas plant
23/02/2023 21:47 in Business News

Kenya granted a Tanzanian billionaire permission to build a cooking gas plant and storage facilities at the Mombasa port on Tuesday, averting a potential trade dispute between the two neighboring countries.

 

Taifa Gas, which is controlled by businessman Rostam Aziz, was cleared by the energy authority. Aziz had earlier bemoaned that Kenya had gone silent on his inquiries to establish a 30,000-tonne liquefied petroleum gas (LPG) processing plant in the country.

 

The entry of the business entrepreneur, who was named Tanzania's first dollar billionaire by Forbes in 2013, heralds a fierce war for control of the Kenyan cooking gas sector, which is still tightly controlled by Mombasa-based businessman Mohamed Jaffer.

 

"Yes, we have already granted them permission to construct the facility," Epra Director-General Daniel Kiptoo told Business Daily on Wednesday.

 

Taifa Gas's arrival into Kenya is part of a 2021 trade agreement reached by Kenya's former President Uhuru Kenyatta and Tanzania's Samia Suluhu.

 

Mr Aziz had complained in 2021 that Nairobi had gone silent on his 2017 inquiry to develop an LPG factory, bemoaning the hurdles for Tanzanian businesspeople trying to establish a presence in Kenya.

 

Taifa Gas is Tanzania's largest LPG supply firm, and it has been supplying the Kenyan retail market by road.

 

Mr. Aziz is now vying for a substantial piece of Kenya's LPG industry.

 

It also sets the scenario for a billionaire's battle between Mr Jaffer and Mr Aziz, 58, which is likely to reduce the cost of managing and evacuating cooking gas from ships to the mainland, allowing dealers to pass the savings on to customers.

 

Mr Aziz, like Mr Jaffer, has engaged in creating political networks, serving as MP and treasurer of Tanzania's ruling party, Chama Cha Mapinduzi (CCM).

 

Mr. Aziz's intentions to develop a retail cooking gas presence in Kenya appear poised to spark a new market battle with oil dealers such as Vivo, Rubis, and Total for control of the 2.87 million houses (23.9 percent of Kenyan households) who use the fuel for cooking.

 

Taifa Gas intends to construct the 30,000-tonne Kenya plant at the Special Economic Zone in Dongo Kundu, near Mombasa's port. It was once anticipated to cost $130 million (Sh16.25 billion).

 

This will be practically on Mr Jaffer's doorstep, as his company, Africa Gas and Oil Limited (AGOL), operates a multi-billion shilling facility nearby.

 

In the absence of price regulations, the construction of the Taifa Gas project provides Kenya with an opportunity to reduce cooking gas costs.

 

LPG prices have risen to new highs, with a 13-kilogramme container costing an average of Sh3,266 in Nairobi, while a six-kilogramme container has surpassed Sh2,000.

 

It is unclear how much AGOL costs oil companies for handling cooking gas, but the absence of other competitors in the market shows a lack of major competition, which has kept the rates high.

 

Following an upgrade of the facility built in 2013, AGOL now has a storage capacity of 25,000 tonnes of LPG.

 

The plant was designed to allow for bulk imports of cooking gas in order to cut unit costs through economies of scale and to alleviate shortages caused by the smaller import terminal at Shimanzi.

 

It had a 10,000-tonne storage capacity, and the 25,000-tonne unit is one of the largest in Sub-Saharan Africa.

 

The import handling and storage operation has helped relieve demand pressures by reducing stock-outs, effectively lowering LPG prices.

 

Due to insufficient discharge facilities, oil merchants previously imported cooking gas in modest volumes.

 

Due to hefty import premiums and demurrage, which are penalties marketers pay shipping companies when tankers fail to offload within the specified time period, this resulted in cooking gas shortages and overpriced LPG.

 

The Shimanzi terminal can only handle 1,400 metric tons.

 

The tankers would queue for up to two months, costing the marketers $20,000 each day (Sh1.7 million).

 

Mr Jaffer now has a tight grasp on the lucrative cooking gas industry thanks to the AGOL plant and Proto Energy, the manufacturer of Pro Gas.

 

Grain Bulk Handlers, which has a near-monopoly in the discharge and handling of bulk grain cargo at the Port of Mombasa, is also owned by the business mogul.

 

In the lack of government expenditures in import and storage infrastructure, private enterprises have been vying to gain from Kenya's expanding use of cooking gas.

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