Politicians, tax officials, police aiding illegal cooking gas trade

What you need to know:

  • According to Mr Ng’ang’a, malpractices in the business have increased especially now that consumption has registered an upswing due to a growing middle class population.
  • By extrapolation on 3:7 basis, it implies that the illegal gas fillers are pocketing a whooping Sh4.6 billion in unpaid taxes alone.
  • The Nation has established that a cartel of about 10 businessmen has been identified as the key drivers of the illegal trade. They have set up unlicensed LPG storage and filling centres in Nairobi and across the country. They are also accused filling other brand owners’ gas cylinders.

A senior politician in the Jubilee Coalition has been accused of abetting illegal cooking gas business as unscrupulous traders move to make a kill from the multi-billion shillings sector.

About seven out of 10 gas cylinders in the market are being illegally filled with uncustomed gas by unscrupulous businessmen in Kenya.

The gas is mainly brought in from Zambia and Tanzania in lorries through the borders despite the presence of police officers and Kenya Revenue Authority (KRA) officials, who are supposed to stem the practice.

As an indication of how much is lost as taxes, players in the energy industry told Smart Company that the taxman collects about Sh2 billion per year as VAT alone from Liquefied Petroleum Gas (LPG).

By extrapolation on 3:7 basis, it implies that the illegal gas fillers are pocketing a whooping Sh4.6 billion in unpaid taxes alone.

The money in the illegal business is attracting politicians who are said to be protecting the unscrupulous businessmen.

Investigation by the Nation was told of a recent incident where a senior Jubilee Coalition politician summoned the Energy Regulatory Commission (ERC) officials as well as representatives of some of the players in the industry to his office in Parliament to complain of some dealers who were being harassed. This followed heightened raids on illegal gas filling centres.

The Nation has established that a cartel of about 10 businessmen has been identified as the key drivers of the illegal trade. They have set up unlicensed LPG storage and filling centres in Nairobi and across the country. They are also accused filling other brand owners’ gas cylinders.

HUNTER TURNS HUNTED

As an indication of how powerful the cartel is, a group of industry players in the company of ERC agents, who raided one of the illegal filling centres, have been taken to court on charges of robbery with violence in a case of the hunter becoming the hunted.

To execute their illegal business, the cartel was believed to have had one of their own at the helm at the ERC but the officer was sent home recently.
A LPG dealer, whose licence was cancelled by the ERC for illegally filling other company’s cylinders, acknowledged as much.

“Just like any other form of crime, illegal filling of gas is common knowledge even among licensed dealers. It is happening,” he said.

Besides illegal filling and sale of non-stench gas, other malpractices threatening to cripple the industry include unlicensed transportation of bulk LPG, cross filling of cylinders, sale of LPG in cylinders that are beyond their revalidation dates and which are prone to explosions as well as the sale of underweight cylinders.

Questions are being raised on the monitoring and enforcement regime governing the industry given that the malpractices continue unabated.
Besides the ERC, other agencies involved in monitoring the industry include the KRA that collects taxes, the Kenya Bureau of Standards, the police and the Anti-Counterfeit Authority among others.

The KRA and the anti-counterfeit agency, however, did not respond to our queries despite sending the questions to their senior officers at their request.

The malpractices have rendered the adoption of the universal valve (regulator), which was meant to increase the uptake of LPG, irrelevant.

A section of market players now wants the government to issue a legal notice legalising the use of brand-unique valves, which they say will deal a body blow to illegal gas filling albeit in the short-term.

According to data seen by the Nation, Kenya consumes 95,000 tonnes of cooking gas every year but it has the potential of using one million tonnes. It is this unmet demand that the unscrupulous businessmen are exploiting.

ERC Director-General Joe Ng’ang’a said Kenya’s per capita consumption stands at 2.5 kilogrammes, which is quite low compared to other countries in Africa such as Senegal whose per capita uptake is over 10 kilogrammes.

RIGHTS ON CYLINDER

“The cake is too big and more effort is required to increase the uptake of LPG so as to wean off people from the consumption of dirty fuels such as kerosene and wood fuel”, he said.

According to Mr Ng’ang’a, malpractices in the business have increased especially now that consumption has registered an upswing due to a growing middle class population.

A contentious issue in the industry is whether the seller continues to have any rights on a cylinder once it is sold. While the brand owners say what a consumer pays is only a deposit, the independent dealers say the brand owner ceases to have any rights over the cylinder and it can therefore be filled by any other provider. The matter is already in court awaiting determination.

The chairman of the Petroleum Institute of East Africa, Mr Polycarp Igathe, says the challenge posed by the malpractice is that the unscrupulous dealers are investing their ill-gotten money in property and not in cylinders.

This, he said, could explain why there has been a rise in cases of armed robberies in filling stations and gas outlets across the country.

As a result, genuine dealers shy away in investing in cylinders, resulting in shortage. It is estimated that Kenya has a shortage of about five million cylinders, a situation which is stifling growth in the use of gas.

“The counterfeiters invest their ill-gotten money in real estate. They never reinvest in metal cylinders. This leads to high incidence of gas cylinder robberies. The trade is feeding rise in crime,” Mr Igathe said.

Currently, one has to demonstrate that he owns 5,000 cylinders to be licensed as a dealer.

SAFETY STANDARDS
The chairman of the Energy Dealers Association James Macharia said that once the issue of who owns the cylinder is determined, most of the sticking issues in the trade would be dealt with. The matter, he adds, is the subject of the friction between the independents and multinationals.

Mr Macharia says the market is big enough for every one if the law was enforced without bias.
About seven out of 13 premises that had been shut down by the authorities have now complied with the set safety standards, he says, adding that many more were working with the ERC to comply.

PROVIDE JOBS

On criticisms that ERC is not doing enough to enforce the law, Mr Ng’ang’a said that his organisation is working with the dealers to ensure they meet set standards.

“Since more players are required, our role is to ensure fair competition and compliance but we do not determine the entry and exit of players in the sector,” he says.

He adds that the weaknesses in the law are being addressed with a view to enhance the sanctions as well as give more powers to the regulatory agencies.

“We also want to make access to cylinders affordable as well as deal with issues of access and affordability. In that way we hope there will be synergy between the small and big players in the sector,” he says.

Mr Igathe agrees, saying those dealing in counterfeits can instead sign agreements with genuine brand owners, invest in cylinders and grow the market thereby providing jobs for Kenyans.