Cartels minting millions from illegal sale of cooking gas

A ruthless cartel is running a parallel multimillion-shilling liquefied petroleum gas (LPG) market in Kenya, putting thousands of lives at risk and minting millions tax-free, the Nation can reveal.

Lack of vigilance and pathetic enforcement has led to a thriving black market, where thousands of leaky cooking gas cylinders— filled by cowboy suppliers who provide no maintenance or repair to damaged or old cylinders — are dumped onto the market.

The cartels are also at war with another pool dominated by multinationals — and in the ensuing tussle for the cooking gas billions, Kenyan consumers end up paying some of the highest prices of gas in the world.

At least 26 illegal gas-filling plants located in eight counties now run this black-market business that has seamlessly intertwined itself with the legal supply chain, confusing consumers and undercutting revenue from genuine dealers.

The cartel has taken advantage of the universal valve that was supposed to spur competition in the LPG market and diminish the monopoly of giant multinationals who controlled the market.

The industry lobby group, the Petroleum Institute of East Africa (PIEA), says the illegal refilling plants are potential security threats apart from just being illegal as terror can be executed using the plants located close to residential areas.

SMUGGLED SOURCES

The plants are said to get the gas from smuggled sources, usually through the Kenya–Tanzania border, where the gas enters from Zambia.

While the standardisation allowed customers to refill their gas cylinders from independent gas fillers, lack of control of this industry has now mushroomed into a deadly trade, with criminal gangs controlling the empty cylinder market.

Under the pool, when one fills a cylinder from Station A, the station is under obligation to take the cylinder to the branded owner in Station B and should there be a shortfall in the number of cylinders, then Station A has to pay Station B a certain amount of money. In this complex system, the pool is said to be running a debt of Sh500 million.

This might interfere with the projections of the 2015 Draft National Energy Policy, which estimates that household use of LPG by 2020 will be 18 per cent, an increase of 2.16 per year, which if sustained means that 35.3 per cent of households will be using LPG by 2030.

The illegal gas is packaged into branded containers of trusted brands — a tricky issue in the industry since the cylinders are owned by the consumer and not the industry.

“The danger of buying counterfeit LPG is that safety of the consumer is not guaranteed because the operators do not undertake proper checks during the refilling process,” warns Energy Regulator Commission’s (ERC) acting Director of Petroleum Edward Kinyua.

UNSCRUPULOUS TRADERS

One of these unscrupulous traders died three weeks ago after an explosion at his gas plant in Ndenderu in Kiambu County. The trader and his two workers were injured as they tried to dismantle and relocate the death trap in the dead of the night.

A week earlier, a nine-year-old girl died after a leaking gas cylinder bought at the same plant exploded at their home.

The plant had at first been dismantled in June 2015 by the ERC but the owner built a new one.

“It seems the plant owner started operating discreetly thriving on intimidation of his neighbours,” says Mr Kinyua.

And since these illegal plants are not associated with any LPG supplier, the customer is unable to track the source of the gas he purchases since the black market hardly cares about the brand name printed on the cylinder.

Unlike before, when a branded cylinder gave the customer an assurance of its origin, the cartels now thrive with home deliveries, at times delivering underweight cylinders.

“Cylinder ownership is a matter that is currently being evaluated ... the most important aspect is to ensure that whatever mode of operation is adopted, consumer safety is guaranteed through an elaborate system of cylinder revalidation,” said ERC while responding to our queries.

Last month, the PIEA wrote Inspector-General of Police Joseph Boinnet raising the alarm over robberies at petrol stations.

In the past two weeks, four security guards have been killed in western Kenya by the the gas robbers.

But the hotspot remains the illegal LPG belt of Kabati, Juja, Maai Mahiu and Makuyu.

PIEA General Manager Wanjiku Manyara told Mr Boinnet that “oil marketing companies are losing cylinders to a well-orchestrated syndicate that flags down truck drivers only to sedate and rob them, sometimes at gun point.”

The cartels then take the LPG cylinders to their illicit dens for filling.

That police are unable to crack down on these illegal fillers has shocked the industry that has been left with no protection.

INVESTIGATIONS IN PROGRESS

“None of the stolen cylinders have been recovered to date though investigations are in progress. This worrying increase in cylinders theft is of great concern as they most probably end up in illegal storage and refilling dens.

"The increase in robberies could signify the insatiable appetite of illegal LPG refilling hence we request your intervention in fast-tracking the ongoing investigations, which would lead to arrests and charging of the culprits in court,” wrote Ms Manyara.

The institute further requested security surveillance in western Kenya especially at night when the gangs attack service stations and escape with cylinders.

It is reported that Mr Boinnet had also not acted on a similar letter from the ERC that had details including the names and contacts of those running the illegal plants, casting doubt on any intervention.

When the Nation visited some of the sites, it was business as usual, with trucks delivering gas to the refilling dens as well as private cars loading cylinders for distribution. One of the illegal plants is just a few metres from a police station.

Two years ago, Polycap Igathe of the PIEA estimated that these illegal fillers could be commanding about 80 per cent of the LPG market.

In Nairobi, we counted at least eight major illegal plants located close to residential homes, painting a picture of a horror waiting to happen as authorities watch.

We easily located these gas plants in Eastlands, including near Nyayo Estate, Donholm and Embakasi and it is estimated by the Petroleum Institute that Nairobi could have 10 illegal and unlicensed LPG storage and cylinder-filling facilities.

The Energy Regulatory Commission, which is supposed to license such outlets, wrote to Mr Boinnet in December 2015 seeking police help to curb the vice. Sources say that the police seconded to the ERC got entangled in the network.

Frustrated, the regulator is now calling for the public to help them weed out the illegal business, which is a disaster waiting to happen.

“The public is encouraged to report to ERC any LPG refilling plants located in residential areas as these are a big danger to safety,” says Mr Kinyua.