PayGo Energy sets sights on connecting a safe, transparent and affordable LPG market in Kenya, and beyond.
By: Mark O'Keefe
Tags: Energy Access, Lpg, Regtech, Kenya, Startup

The LPG market in Kenya is fragmented and largely informal

There are currently 227 registered companies involved in the import, transport, wholesale and retail of LPG (EPRA, 2019). But there are hundreds more ‘informal’ retailers who are not captured in this figure, many of whom operate in rural and peri-urban communities, and in informal settlements. With so many players in the market, Kenya has seen increased LPG supply (resulting from the growing number of distribution points) and lower retail costs (resulting from new entrants who are driving down prices). However, a crowded, largely informal market isn’t always a good thing for consumers.

Informal retailers often gain an unfair advantage through unsafe and dishonest cost-cutting practices, including illegal refilling and systematic underfilling of cylinders. These practices put consumers at risk, cause reputational damage to the industry, and discourage those who do play by the rules from investing in supply. Further, market fragmentation increases distribution costs, resulting in higher prices for the end consumer. So even if the price of LPG purchased from an informal retailer is low, it should be lower.

New regulations aim to bring order to the LPG market by holding suppliers accountable for their cylinder stock

The new regulations, gazetted by the Government of Kenya in June 2019 (Legal Notice 100), include a range of sensible measures that aim to bring order to the industry, improve safety and transparency, and encourage further investment. Under the regulations, brand owners can only refill their own cylinders (abolishing the cylinder exchange pool in favour of a mutual exchange pool). LPG suppliers (both brand owners and retailers) must be able to track every cylinder they put into the market, and they must ensure all of their cylinders are in good repair. The regulations also require that distributors demonstrate “economic viability” through ownership of at least 5,000 cylinders. Suppliers that fail to adhere face hefty sanctions.

The confidence brought by the new legislation seems to be working. In 2019, Kenol Kobil has been purchased and share purchase agreement has been signed for Gulf Energy. If more investment is made into the downstream LPG market, it is likely that there will be more consolidation between existing brands.

Digital solutions will make it easier for LPG suppliers to comply with the new regulations, and improve operations

Currently, LPG suppliers manage distribution through predominantly analogue processes. Cylinders are tagged and inspected prior to being sold in the market, but data collection ends there. The entire supply chain, after the refilling operation, is essentially invisible. This is a missed opportunity for both suppliers and consumers. For suppliers, the data is not captured and therefore is not used to make decisions. For consumers, there is no means of validating their purchase — the cylinder may have been refilled illegally; it may be underfilled, or it may not be in a safe condition.

A PayGo retail agent completes a cylinder exchange by scanning the cylinder using PayGo’s mobile application

PayGo Energy has created a platform to connect consumers, businesses and cylinders in the LPG supply chain. PayGo’s Tag and Trace technology ensures each brand owner registers every cylinder. Every time a cylinder is moved through the supply chain, the date, time and location of the movement is recorded. This provides end to end visibility from the wholesaler of LPG to the retailer and home delivery to the consumer.

Cylinder tracking lays the foundations for a broader digital transformation

Digitisation has the potential to transform LPG distribution in Kenya. This digital transformation will occur in three steps. First is utilising data generated by customers, retailers and wholesalers to make better operational decisions. This might include decisions on how many staff are needed or when to restock inventory. Second, predictive analytics will be created based on consumption and distribution data to predict when customers will run out of gas, and when retail locations require inventory. Lastly, prescriptive algorithms can be created to optimise LPG distribution, for example, the best delivery routes to be used and automatic creation of stock replenishment orders.

PayGo’s Hub Manager enables suppliers to view their entire cylinder fleet at a glance

The new regulations should be embraced as a carrot for positive change, rather than as a stick to punish local companies. Tag and trace cylinders provide a great opportunity for the industry to become more efficient through digitisation. Improved efficiency will lead to lower distribution costs, which should ultimately lower the price for consumers, resulting in more people accessing safe, affordable gas.