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Why cooking gas will cost more

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A persistent surge in the global prices of cooking gas points to more inflationary pain for Kenyan households already grappling with higher bills for other fuels such as petrol.

The prices of butane and propane—the by-products of crude oil used in the manufacture of Liquefied Petroleum Gas (LPG) — have risen in the past months on increased demand but low supply in the Gulf countries, which are Kenya’s main source markets of cooking gas.

Industry data shows that the price of propane has jumped by 42.01 percent in the past three months to $1.27 (Sh140.33) per gallon while that of butane has risen by 28.6 percent in the period to $675(Sh74,587.50) per gallon.

The impact of these price rallies is expected to be felt in Kenya in the coming weeks, adding strain on consumers who barely two months ago took a hit from the State imposing a 16 percent value-added tax on LPG, pushing the cost of cooking gas to a six-year high.

With the global crude prices rallying to a three-year high of $80 (Sh8,800) a barrel this week, the situation could worsen for consumers because of increased costs of refining the commodity to produce LPG and other fuels.

“Crude prices have been increasing and today closed at $80 per barrel. What this means is that there will be an increase in the cost of refining crude and consequently cooking gas imports from the source markets in the Gulf will come at higher prices,” Powell Maimba, a petroleum expert told Business Daily.

A surge in demand for propane on the reopening of economies from the coronavirus-induced lockdowns and low supply of the commodity has triggered the rise in prices.

The supply of butane and propane has also been hit by a series of outages and planned maintenance in the source markets as countries respond to the surge in demand from the lows of last year when the pandemic disrupted activities globally.

Saudi Arabia, United Arab Emirates, and Singapore are the key sources of the cooking gas used in the country.

LPG prices hit a six-year high on the reintroduction of the 16 percent VAT tax from July1. The 13-kg cylinder gas has averaged Sh2,400 while the 6-kg one is averaging Sh1,300.

Parliament reintroduced the tax despite opposition from lobbies who wanted it delayed in the wake of the coronavirus-induced hardships that have hurt the purchasing power of households.

The rise in the cost of LPG and other fuels has also been blamed on the taxation regime that has prompted calls for the reduction of the levies charged.

Lawmakers are currently taking views from the public and other stakeholders in the petroleum industry, laying the ground for possible cuts on the taxes.

The anticipated increase in the cost of LPG is set to hurt growth in consumption of cooking gas that has more than doubled in the past five years on the removal of the 16 percent VAT.

LPG uptake more than doubled to 326,000 tonnes last year from 151,000 tonnes in 2016, highlighting the impact of removing the tax.

LPG remains the second most used fuel for cooking at 23.9 percent of Kenyan households after kerosene at 55.1 percent.

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