The Ministry of Energy’s Wananchi Gas Project hopes to upscale penetration of LPG from the current 10 percent to 70 percent within the next three years. This remains an ambitious project and where possible stakeholders within the energy sector should work towards its actualization. However, the project will face a myriad of challenges that most players in the supply of LPG have been grappling with in rural settings, problems that are largely due to finances. My previous post highlights a number of findings within the cooking sector.
This project was initially rolled out in 2018 with its objectives being to reduce the over-reliance on firewood and charcoal and significantly mark itself with the milestone of reducing the environmental and health risks associated with using traditional forms of cooking. According to the National Oil Corporation, a key partner in the project, a complete 6 kg cylinder (gas, burner and grill) branded as “Gas Yetu”, was to retail at KSh. 2,000. The subsequent refills were to cost an additional Ksh. 840 per cylinder. This remains a government subsidized project, and if it is to be successfully carried out, its impacts can be immense based on successful pilots in Kajiado and Machakos counties.
Market awareness and intelligence in the supply of newer forms of fuel continue to hold back distributors and manafucturers of LPG. Some lack knowledge on the market size, ability and willingness to pay, and distribution channels. Rural and remote areas need these products the most and consequently, are the hardest hit with these challenges. The Ministry of Energy 2019 study reports that “changing the payment plan from upfront cash to a 6-month payment plan increases the willingness to pay for 6 kg complete LPG cylinder by up to 7%.”
A shift or incorporation of such a payment plan can be very transformative as I will try to explain.
For the sake of clarity, I do not believe that the distance traveled for refills presents a huge challenge. There is a willingness by most people to travel the longer distances due to the convenience associated with using LPG as well as the purchase frequencies. Refills take longer between use (up to four weeks ) as compared to kerosene. In the event that this is a major challenge, the distribution channel proposed by the Wanachi Gas Project should ensure that access is provided at the nearest shopping centres through licensed retailers and distributors.
I will go back to the model used by some of the suppliers of solar kits and how it can help to achieve similar success stories. I am taken back to my visit upcountry two years ago. A friend, Tim (not his real name) decides to shift to solar energy having been made aware of its convenience. He asks around and the purchase and installation cost is upwards of Ksh. 20,000. This discourages him as he cannot raise all the money in one swoop. He is introduced to d.light who offer installations via a hire purchase payment scheme with the following breakdown:
The company will offer him a package with a solar panel, battery, bulbs, torch and radio, and the installation at an initial deposit of Ksh. 2,500 with daily payments of Ks. 50 and a period extending to approximately 1.5 years. This totals to Ksh. 27,600 upon completion of the payment.
Raising a lump-sum amount was a challenge but the offer by d.light presented a flexible and less strenuous option.
If we are to change the payment plan for LPG to be a replica of the one used by d.light, a possible scenario would look like this:
The household will be required to pay an initial deposit with the remaining amount spread across a flexible payment period. Using the Wananchi Gas Project figures (Ksh. 2,000 per cylinder) and assuming interests associated with the initial price to adjust the total price to say Ksh. 2,500 the buyer can be advised to pay an initial deposit of Ksh. 700-1,000 and the remaining Ksh. 1,500-1,800 paid over a 30-day period averaging Ksh. 50-60 per day.
In the case of private suppliers and distributors such as KOKO, they can negotiate with households and spread the payment across a 90-day period or less depending on the financial dynamics at play. Interestingly, KOKO already offers periodic deposits and the buyer is allowed to collect the burner and smart canister upon making full payment.
Refilling therefore presents the only remaining challenge with the Ksh. 840 possibly being a challenge to some. Factoring financial education on saving, the challenges associated with refilling can be offset proportionately. The case for gas ATM points present a case for case substitution of kerosene and charcoal with clean fuels. Policy initiatives should be aimed at encouraging a multitude of options such as these two as well as other forms of improved cookstoves.