VAT removal to boost cooking gas adoption

Value Added Tax (VAT) was recently scrapped on Liquefied Petroleum Gas (LPG). It is hoped that the move will slow down deforestation (cutting down of trees for firewood and charcoal) for cooking energy, bring down gas prices in Uganda to within East African Community (EAC) levels.

It will also bolster Uganda's attainment of the United Nations Sustainable Development Goal 7 (SDG7) on ensuring access to affordable, reliable, sustainable, and modern energy for all by 2030.  

Moses Kebba, Marketing Manager at Vivo Energy Uganda spoke to the New Vision's Samuel Sanya about the impact of COVID-19 on the cooking gas industry, and the impact of the removal of VAT on the industry among other things. Below is the conversation;  

How has Covid-19 impacted the use of cooking gas? 

Just like all the other sectors, COVID-19 has had an impact on the overall adoption and use of cooking gas (also known as LPG - Liquefied Petroleum Gas). 

The lockdown measures put in place by the government in March to curb the spread of the virus that included halting of movement of both private and public transport, unless categorized as essential services, affected customer accessibility of cooking gas. To remedy this situation, doorstep home delivery has been adopted to provide greater convenience and safe transportation to customers.  

As many businesses can attest, COVID-19 greatly impacted economies the world over. Not only did the purchasing power of a wide section of customers drop, the pandemic created disruptions to their livelihood as jobs were lost and sources of revenue dwindled. This in turn impacted the use of cooking gas as an option, for preparing meals.  

The adjustment to the new normal has seen more people working from home and their cooking needs increase, with more members of the family now having meals at home. This signals the need for safe and affordable cooking energy, which is an opportunity for greater market penetration. 

Has the removal of Value Added Tax (VAT) changed much for the sector? How?  

The removal of VAT on LPG is a welcome move from the government and is a positive development towards making it more affordable as a safe and energy-efficient cooking solution that is also good for the environment, as LPG for cooking is more efficient than traditional fuels and significantly reduces household air pollution. 

Uganda loses an estimated 100,000 hectares of forest cover annually to wood-based cooking energy like charcoal. Cooking gas, therefore, is not only better for the environment but also offers fewer gas emissions. 

The prices of cooking gas in Uganda have been relatively high in comparison to neighbouring Kenya, Rwanda and Tanzania, thereby limiting uptake. 

On average, a 12-kilogram cylinder refill in Uganda costs between Sh110,000 and Sh130,000, compared to Kenya where a refill goes for approximately Uganda sh72,000. In Tanzania, a refill goes for sh42,000 and sh52,000 in Rwanda, following deliberate action by the governments to drive usage. 

Following the VAT drop by the government, the pricing structure of gas has changed. Refill prices have dropped to sh41,500, sh83,500 and sh252,000 for the 6kg, 12kg and 45kg cylinders respectively. 

What more needs to be done to maximize market potential? 

There is a need for greater public understanding of the benefits of cooking gas as a safe, affordable and cleaner source of cooking energy. Overall, the market potential is hindered by inaccurate myths and fears around its safety and affordability. 

It is also necessary to ensure that regulation is in place to guarantee adherence to specific health and safety standards by all market players so that customers are well-protected. There exist global standards for the filling, storage, handling, distribution, transportation and subsequent sale of LPG, which we follow and should be adopted by all players in the market.  

Unfortunately, the safety of gas in Uganda is compromised as a result of illegal activities by unscrupulous individuals or companies. These vices include the use of substandard equipment for filling the cylinders and unsafe gas filling conditions. We are optimistic, however, that with stronger regulation and supervision, such practices can be curbed to ensure better safety of LPG trade and usage among the people. 

Finally, there is a need for deliberate action by the government to promote the usage of LPG among its people as a safer cooking option. This will also ensure the conservation of trees and the environment. 

As mentioned, climate change is a concern the world over and Uganda's forest cover is being depleted at an alarmingly fast rate, in part due to the need for the high demand for charcoal and firewood. This practice is not sustainable and the effects of these decisions will have serious consequences for us and generations to come.  

In comparison, the environmental footprint created by LPG is negligible because of its clean emission profile and low sulfur content. It is for this reason that many countries across Africa and the world at large are setting targets for adoption of LPG as clean cooking energy. 

According to the World Health Organization, Achieving Sustainable Development Goal 7 (SDG7) requires ensuring access to affordable, reliable, sustainable, and modern energy for all by 2030. Uganda will therefore require a massive scale-up in the deployment and adoption of clean and affordable cooking solutions presented in cooking gas and possibly, solar and electric energy.