000517
000517
000517
in FY2018
Final report
March, 2019
Target
location
i
List of acronyms
ii
LAPSSET Lamu Port and South Sudan Ethiopia Transport
LPG Liquefied Petroleum Gas
MoEP Ministry of Energy and Petroleum
MoI Ministry of Industrialization
MoPM Ministry of Petroleum & Mining
MoT Ministry of Transportation
MT Metric Ton
MW Mega Watt
NEC National Environmental Council
NEMA National Environmental Management Authority
NOCK National Oil Corporation of Kenya
ODA Official Development Assistance
OPEX Operating Expense
PIEA Petroleum Institute of East Africa
PPP Public–Private Partnership
SEZ Special Economic Zone
SEZA SEZ Authority
SGR Standard Gauge Railway
SoT Simanzi Oil Terminal
TICAD Tokyo International Conference on African Development
TOR Terms of Reference
USD United States Dollar
VAT Value Added Tax
iii
Contents
1. Introduction (Background, Purpose, Search plan/period, etc.) .......................................... 1
2. Overview of the Republic of Kenya .................................................................................... 3
(1) Economy/financial situation in Kenya ........................................................................... 3
(2) Energy situation in Kenya ............................................................................................. 5
(3) Energy use status in Kenya .......................................................................................... 6
3. Partner country government, local municipality, and competitor trends ............................ 7
(1) Partner country policy trends ........................................................................................ 7
(3) Determining actual status including current infrastructure ............................................ 9
(4) Future plan of infrastructure ........................................................................................ 10
(5) Determining needs/problems of people concerned .................................................... 12
(6) Market size estimate / demand prediction .................................................................. 13
4. Project Summary (Basic Design & Business Model Development)................................. 17
(1) Project site selection ................................................................................................... 17
(2) Project outline .............................................................................................................. 20
(3) Outline design.............................................................................................................. 21
(4) Procurement (check into superiority of Japanese businesses, possibility of
third-country cooperation & measures on increasing cost competitiveness)............. 21
(5) Calculation of project scale, etc. (including operation and service/maintenance
expenses) ................................................................................................................... 22
(6) Project implementation organization and schedule .................................................... 22
(7) Project financing .......................................................................................................... 25
(8) Environmental impact assessment (including research into environmental
improvement effect, impact on environment and society, etc.) .................................. 25
(9) Environmental impact assessment (estimated reduction in CO2 emission based on
energy source) ............................................................................................................ 36
(10) Risk analysis.............................................................................................................. 37
(11) Economic assessment............................................................................................... 38
(12) Expected benefits for Kenya and benefits (economic effects) to Japan to be gained
from the project ........................................................................................................... 39
5. Action Plan and Issues to Implement Project................................................................... 41
(1) Progress of the efforts made by the authorities concerned and implementing
organizations .............................................................................................................. 41
(2) Expected utilization of political support (Consideration of possibility of utilizing various
tools: inviting or sending experts) ............................................................................... 42
iv
(3) Repose to items requested or pointed out by Kenyan government officials and survey
required to improve project proposals ........................................................................ 42
(4) Possibility of expansion into other countries and measures to promote expansion ... 42
(5) Possibility of Japan-India cooperation ........................................................................ 42
v
Summary
This report is a summary of the results of the feasibility study on developing LPG import
terminal business at the Port of Mombasa, a main port in the Republic of Kenya.
vi
(ii) Candidate site for LPG import terminal LPG
As a candidate site of the LPG import terminal which can maximize management
efficiency, the utilization of SEZ (Special Economic Zone) is examined where the
development is proceeded in the Dongo Kundu district on the shore opposite to the Port of
Mombasa. This SEZ is a development project in consideration of the highway to Nairobi and
the access to the railroad, therefore this location will contribute to minimize not only the
import cost but also the domestic distribution cost.
The business investment at Phase 1 and Phase 2 each was estimated. The premise is
that all taxes such as the import duties and the VAT regarding the materials and equipment
for LPG terminal construction will be exempted.
LPG Sales price is roughly calculated and compared with the domestic wholesale price in
Kenya (at Mombasa) as of October, 2018 obtained by this study. When Jetty work is beard
by KPA and an enterprising body shoulders only the terminal construction, the prices at
Phase 1 and Phase 2 fall below the current price. Specifically in Phase 2, the prices are at
the same standard with Asian countries.
Though the business investment and the management cost expenses requires thorough
investigation in the future, judging from above-mentioned result, it is possible to say that
there is sufficient business profitability.
vii
1. Introduction (Background, Purpose, Search plan/period, etc.)
Investigation was carried out about the feasibility of the new LPG import terminal
development management business that can lead to the pollution control measure and the
deforestation restraint in rapidly urbanizing Kenya as well as contribute to stable supply of
energy as the basis of the development of this country.
1
Problems and proposals in management and maintenance (Including a
comparative-advantage analysis with competing companies).
Possibility of participation of Japanese companies in management and maintenance
Possibility of cooperation of the third country
Analysis on environmental load effects such as CO2 reduction effect accompanying
project implementation, etc.
(3) Examination of environmental and social aspect
Environmental improvement effects such as CO2 reduction effect accompanying
project implementation
(4) Implementation schedule of the project
(5) Ability to execute in Kenyan implementing organization
Analysis on electric power market system in Kenya
Analysis on ability of the implementing organization (construction, management,
maintenance, etc.), etc.
(6) Analysis on finance/economic efficiency and prospect of project fund raising
Integration of project cost (CAPEX, OPEX)
(7) Action plan and problems for realization of the agenda item
Working status of Japanese companies, Kenyan authorities concerned and
implementing organization
Legal and fiscal restriction inside Kenya
Future action, horizontal spreading to other countries, etc.
2
2. Overview of the Republic of Kenya
Kenya, located in East Africa, faces the Indian Ocean on the southeastern side, and the
rest is bordered by Somalia, Ethiopia, South Sudan, Uganda, and Tanzania
3
industrialization is not sufficiently realized, therefore remaining an agricultural country
like other African countries (Agriculture accounts for 36% of GDP (World Bank, 2016)).
Table 2: General condition of Kenya (Excerpt from Basic data of the Republic of Kenya,
Ministry of Foreign Affairs)
Area 583,000 km2 (Approx. 1.5 times the area of Japan)
Population 49.7 million people (United Nations, 2017)
Capital Nairobi
Major Ethnic Kikuyu, Luhya, Kalenjin, Luo
Group
Official Language Swahili, English
Religion Traditional beliefs, Christianity and Islam
GDP USD 70.5 billion (World Bank, 2016)
GDP growth rate 5.80%
GNI per person USD 1,380 (World Bank, 2016)
Unemployment 11% (World Bank, 2017)
rate
Total trade Export USD 5.61 billion : Tea, Garden crops, Coffee, Fish
value/Main trade Import USD 13.9 billion : Industrial products, Capital equipment,
items (2016) Transport equipment, foods
Main trading Export : Uganda, the Netherlands, the U.S., the United Kingdom,
partners Pakistan
(2016) Import : China, India, the United Arab Emirates, Japan, Saudi Arabia
In the general election in August, 2017, although the former President Kenyatta was
thought to have been elected with 54.27% of the vote, an election re-run was held in
October because his rival candidate Mr. Odinga from the opposition party contested the
electoral commission. However, Mr. Odinga boycotted the repeat vote because he said
no reforms had been made to the electoral commission. As a result, President Kenyatta
was re-elected once again. After that, a surprise “handshake” between President
Kenyatta and Mr. Odinga in March 2018 started the Kenyatta-Odinga cooperation
structure. However, it is strongly felt that the purpose of this was to drive Deputy
President Ruto away, who is said to be the candidate for the next presidential election.
As the preparation of the next presidential election (2022) goes into full swing, the
political situation may become unstable.
4
In the confusion by the presidential election, the GDP growth rate in FY2017 fell
below 5%, but still remains at a comparatively high value of 4.81%. GDP is estimated to
be USD 79.5 billion (JETRO, Kenya basic economic indicator). As of 2018, the
economy has returned to a stable state, and even with the anxiety of the split between
tribes started from the presidential election, continuous high economic growth is
expected.
As Kenya maintains a high economic growth rate, it is also a country with a trade
deficit and a deficit in the fiscal balance. Specifically, the recent large-scale public
investment by the government such as the standard gauge railway (SGR) causes the
expansion of the gross debt. According to the release of the Central Bank of Kenya, the
gross debt of the government in 2017 reached the record 4.56 trillion KSh. In the first
half of the year 2018, the figure worsened to approx. 5 trillion KSh and the public debt
seems to approach 60% of GDP. The Kenyan government has scheduled the
introduction of a value-added tax (VAT) to oil products for September 1. This VAT has
been postponed since 2016, but the opposition from the financial circles continues. If
the VAT taxation is postponed further, the tax revenue is expected to decrease and
more severe fiscal conditions are expected. (JETRO, Business brief note dated 26th
September 2018).
5
Energy Industry, Policy and Strategy for Kenya, 2015).
Surprisingly, 83% of the population still depends on the biomass mainly in
non-electrified rural areas. As it is a cause of environmental destruction and health
hazards, the government is aiming for the immediate development of energy sources.
Kenya imports all of its petroleum. Although an oil field was discovered in the
northwestern part of Kenya in 2012, it has not moved to a development phase. The
LAPSSET (Lamu Port and South Sudan Ethiopia Transport) project for importing oil
from South Sudan with the pipeline, MoU was concluded with Ethiopia in 2016, but no
major developing is seen. The oil import terminal only exists at the Port of Mombasa at
present and extreme lack of capacity has been reported (Global Legal Insights, Energy
2018 Kenya).
The composition of electric power is hydroelectric power at 37.2%, geothermal power
at 27.0%, thermal power at 29.7%, and others at 6.1%, and the total power generation
is 2,234 MW as of 2017 (Business Finland 2017, Energy Sector Insights Kenya). The
electric power master plan of the Kenyan government, Updated Least Cost Power
Development Plan 2017-2037, is planning to increase the total power generation to
7,213 MW in year 2030, and up to 9,932 MW in year 2037. The electricity charges are
approx. USD 0.2/kWh, which is equivalent to those in Japan. The demand for electricity
is rapidly increasing by the economic growth in Kenya, whereas the rate of
electrification remains 65% (2014 IEA). Even in electrified areas, diesel electric power
generation is introduced as back-up power at factories, hospitals, hotels and
commercial establishments due to frequent power failures caused by the aging of the
power generation equipment and the power grids, power theft and the decline of the
amount of power generated at the hydroelectric power station resulting from factors
such as climate change. Diesel electric power generation is often used as the main
power source in the villages or towns away from the grids.
6
plays a major role in rural areas.
Table 4: Cooking fuels in Kenyan households (Kenya Bureau of Statistics 2014, Exploring
Kenya’s Inequality: Pulling Apart or Pooling Together?)
Tthe Ministry of Energy and Petroleum (MoEP) indicated that the obstacles to the
LPG popularization are kerosene being 57% lower-priced than LPG (of which 20% is
due to the taxation to LPG), and cylinders being expensive (47% derived from the tax in
the pricing of a cylinder). As of September, 2018, the Kenyan government has already
taken the following response.
7
(ii) Start of cylinder purchase subsidy
In addition, the Workshop also referred to the review of the mutual filling system
(Exchange Pool※) which serves as a hotbed for fraud, and actually, Kenya has begun to
abolish the Exchange Pool. (※: A system that allows a seller to sell a cylinder filled by
the seller’s company according to a request from a user, even if the used empty cylinder
is not of the brand of the seller’s company, and to return the empty cylinder via
Exchange Pool. This system promotes the circulation of cylinders, whereas poor-quality
cylinders and LPG with the insufficient amount of contents and quality go on the market,
and there are many businesses supplying inferior and cheap LPG.)
In April, 2018, an amendment proposal for Legal Notice No.121 was presented which
contains the system reinforcement regarding LPG license assignment by ERC. Safety
control is recognized as being important for LPG popularization, and Exchange Pool
abolition is also stipulated while including penalty reinforcement.
(Policies/regulations regarding LPG import and sales (National and local governments))
LPG-related licenses are currently being revised, but it is expected to be as follows.
8
Table 5: Standards requiring observance to implement LPG business
LPG KS 03:91:1985
Butane-propane mixed gas Or those approved by KBS.
cylinder KS ISO 4706-1989, KS 06-896, KS 2122:2008, KS
ISO 11118:1999
Integrated-type valve KS 201:2010
LPG facilities for house/ KS 1938:2015
commercial establishment
(Plumbing, etc.)
9
management has resulted from long-term demurrage due to the ship having to moor or
to stand by in Mombasa bay for a long time while waiting for room to be made in the
land tank, which has limited capacity.
It is only at the Port of Mombasa where the marine import of the LPG is carried out in
Kenya and only AGOL and SoT possess the facilities. While LPG land import by the
land transportation (tank truck) is also carried out via Tanzania, the details are unclear.
According to the trade association PIEA which plots the healthy promotion of the oil
gas products in East Africa with Kenya at the center, LPG sales volume of Kenya in
2017 is 192,502 tons (PIEA 2018, Petroleum Insight 1st Quarter) and is said that
240,000 tons are expected when including an illegal deal, too. A quantity equivalent to
approx. 25% of the statistics is imported without going through the regular procedure,
and most of it is likely to be transported overland.
To begin with, this seems to happen because the price competitiveness is low due to
the overwhelmingly insufficient capacities of the facilities at the Port of Mombasa, the
marine import location, and high LPG import costing via SoT.
In order to break through the present situation, MoEP has KPA and KPC work
together and aims at construction of new LPG import facilities and expansion of the
existing storage facilities in accordance with the replacement of Kipevu Oil Terminal
(KoT) dedicated to oil products. The plan is to add a LPG pipeline on the marine Jetty
for the oil products planned to be constructed inside the Port of Mombasa and to
transport to the KPC-owned LPG tank in Changamwe. LPG is named as the emphasis
field in KPC, however, KPC is in charge of the reinforcement of domestic storage
facilities as well as the import facilities, and the priority of import facilities in the Port of
Mombasa seems to be under various discussions.
10
In addition, more than one project to attempt a new entry to the LPG terminal
business can be confirmed.
One is a project promoted by Milio International Ltd (Dubai) IFC announced the
financing of USD 48 million. The plan is said to construct storage tanks near the
channel of the Port of Mombasa. It appears that EIA ended and that the building was
approved.
Another is a project which combines a land tank owned by Mansa East Africa Ltd and
the marine tank. This plan is also said that EIA ended and berth licensing was
approved.
All projects set a construction planning site on the west side of Mombasa Island, near
the channel to the Port of Mombasa. LPG is planned to be transported to the
consuming regions such as Nairobi using lorries. However, major problems are still
associated with this location, as the chronically congested bridge must be crossed to
join to the highway (express) to Nairobi.
Figure 2: Prognostic chart of future LPG storage facilities around the Port of Mombasa
(Pipeline described as our expectation)
11
(5) Determining needs/problems of people concerned
LPG retail price in Kenya was USD 2.57/kg in 2010, which was much higher than the
global standard. However, the establishment of LPG import terminal in 2012 by AGOL
significantly reduced the retail price.
LPG prices were again surveyed in Nairobi and Mombasa, with results indicating
approx. USD 1.5-1.6/kg in major gas stations and at general retail stores. Meanwhile,
the common price range in the developing countries is USD 1.0-1.3/kg worldwide.
Price reduction was achieved by improving LPG distribution by AGOL. Meanwhile, it
can be said that the market has been monopolized, with prices maintained at higher
than at other locations worldwide.
12
It was also found that some retail stores sell at USD 1.1/kg, which is about 30%
lower than the average price. Such items are highly likely to be illegally distributed
LPG. According to the on-site hearing, problems in the illegally circulated LPG were
pointed out such as the illegal cull when circulating, in addition to physical damage
such as insufficient filling amount and bulk increase by adding water.
In this context, the Ministry of Petroleum and Mining (MoPM, old MoEP)
commented that they support our business in consideration of the fact that it
contributes toward relieving the public financial burden by reducing the supply cost of
the LPG and the establishment of regular circulation.
We hope to consider introducing Japan's safety standards and detailed operation
procedures, which have long been cultivated, so as to contribute to securing the
quality or safe use of LPG through the safe operation of import terminals and
establishing regular distribution channels that are prone to be perfunctory as demand
increases and facility expansion is urgently required.
(LPG consumption)
As for the developing countries mainly located in Asia, the introduction of LPG
depends on the degree of the economic development in each country. LPG demand
is stimulated as the national policy in Thailand and Indonesia. The Kenyan
government is also positive with regards to the popularization of LPG. Therefore, it
appears likely that there is potential for rapid demand expansion in line with the future
economic development/population increase. However, as currently inexpensive heat
sources such as firewood and charcoal are used, more extensive popularization
throughout the country will require price reductions. The price of LPG in Kenya is
more than 30 percent higher than in Thailand or Indonesia.
13
Table 7 : LPG consumption per person in each country
Japan Thailand Indonesia Vietnam Kenya Bangladesh Myanmar Cambodia
14
Correlation between GNI/Capita and LPG consumption/Capita
(Data: World Bank, Global Economic.com)
Kenya
(US$/person)
15
Kenyan GNI, population prediction
LPG demand is expected to reach 800,000 tons in 2030, which is four-fold the
current demand level of 200,000 tons. LPG consumption per population at this point
is 11 kg/ person, which is less than in developing countries in Asia. These figures
appear to be highly achievable.
16
(Demand in neighboring countries)
LPG demand is also rising in neighboring Tanzania. In this country, the
non-governmental enterprises proceed with the business as a major player, and it is
said that each enterprise is working to reinforce LPG storage facilities (by a hearing
conducted by our company). This appears to relate to an aspect of the enough land
at the port compared with Mombasa. However, like in Kenya, the mass transport of
LPG using refrigeration equipment will be necessary in the future in this country in
order to reduce costs.
As for the land transportation to Uganda, a landlocked country, our hearing
indicated that Tanzania is advantageous for transportation by truck. However, rail
transportation is achieved in Kenya in the future, it may lose out to Kenya in terms of
competitiveness.
Land that could be used for storage tank construction while making use of the
existing jetty was examined with satellite photos and on-site study of Mombasa.
However, there is a shortage of available land in Port of Mombasa area. With the
residential and developed areas found in close proximity to SOT, suitable land was
17
unable to be found. The only area where sufficient land is available was found to be
Dongo Kundu located on the opposite shore of Port of Mombasa, where special
economic zone (SEZ) development is underway. Other properties are owned by
existing players, namely, AGOL, KPC/KPRL and KPA in some cases.
Although the chances are not zero for collaborative land use with a competing player,
stable LPG sharing and supply with safety and at low cost requires terminal
development on geographically advantageous land. For this reason, SEZ in the Dongo
Kundu area was selected as the top prospect for the LPG import terminal in this study.
18
Project site selection requires attention to land conditions (geological conditions,
foundation, etc.), presence of residents, possibility of land acquisition, safety regulations
(which are in place for storage facility construction, due to flammability of LPG). Satellite
photo analysis shows that the SEZ is located in a hilly area at altitude of roughly 40-60 m.
There is also a mangrove forest on the coastal area, possibly requiring action in the area
of environmental protection. Adequate study is also required on the water depth of the
jetty, vis-à-vis the size of LPG tankers.
In this study, around the DK-1 and D1 areas targeted for Phase 1 of the SEZ
development project were visited. As examined in satellite photos, the land was confirmed
to be undeveloped, with hills undulating at altitudes of 40-60 m.
Figure 4: Plotted map of the SEZ project site (elevation & coordinates)
19
Resident evacuation and transfer are expected to be implemented without serious
confusion. Resident briefings have already been held jointly by KPA, the development
project owner, and JICA.
The DK-1 project is planned as a yen-loan financed project, while D1 is planned as a
grant aid project. Further study is scheduled to look into essential matters. At the same
time, activity will be coordinated with JICA and KPA that are implementing SEZ
development, as well as parties including Kenya's Ministry of Industrialization.
The business model is expected to focus on the tolling fee business based on fixed
leasing of storage tank capacity in order to minimize LPG inventory risk for the project
owner. Therefore, the prospective customers are expected to be chiefly the existing LPG
vendors excluding AGOL, namely, NOCK, Vivo, Total, Oilibya and Hashi. Additionally,
voluntary supply of LPG to businesses to locate in SEZ, as well as residential homes in
the zone, is taken into consideration. In this case, however, such service will result in
inventory risk for the project owner. Therefore, business risks must be sufficiently
investigated.
20
(3) Outline design
Details, such as the exact location (coordinates) and topographical features in SEZ has
not been disclosed. For this reason, the site was assumed to be quadrilateral in shape in
this study in producing an outline design for Phase 1 and Phase 2 of the LNG import
terminal project.
21
On the other hand, however, LPG distributed in Kenya has higher butane content, due
to the structure of gas cylinders in use. An interview survey of a number of LPG
businesses showed that the ratio of butane is more than 70% in Kenya. Although butane
is comparatively higher in pricing than propane, production costs for storage tanks and
gas cylinders can be kept low, due to butane's low liquefaction pressure. Use of
butane-rich LPG appears to be growing due to feasibility in initial investment cost. At the
present stage, storage tanks for both butane-rich and propane-rich types should be taken
into consideration.
In terms of LPG import price, the procurement price is generally based on Saudi Arabia
CP, with surface freight and other expenses added. Therefore, unnecessary demurrage
charges must be avoided to cut down import cost. In this project, the system has been
designed to curb the number of days for LPG unloading drastically and prevent
demurrage charges, by keeping pipeline length to the least minimum, selecting
appropriate pipe diameter and optimizing LPG tanker size and storage tank capacity. This
is expected to minimize LPG import costs.
22
terminal operation will not be restricted to companies located in Kenya. Rather, it will
extend to Indian businesses with extensive experience and performance records.
Participation of Japanese businesses other than TTC is expected in the area of
maintenance and safety.
In the case of investment by the Kenyan government, bid tendering is required under
PPP law even when investment is by a state-run business enterprise. For this reason, a
large amount of effort and time is anticipated for administrative procedures and the like.
For this reason, methods other than investment, such as super-long-term tank lease
contract and lease of NOCK-owned facility lease, are being planned in collaboration with
the government entity.
In the interviews with government representatives and LPG sales businesses, all
expressed strong demand for speedy project startup, in view of the overwhelming
shortage of LPG storage terminals at the Port of Mombasa and the extremely high
procurement cost resulting from inefficient management. AGOL is making steady
progress in increasing storage capacity and at the same time has invested into an LPG
cylinder manufacturing and sales company (Proto Energy), which in turn has started up
LPG sales business under its own brand. It is apparently strengthening action to capture
the entire LPG value chain, raising fears of dominance in price control.
23
Figure 5: Current project implementation organization plan
(Project schedule)
The project schedule is as below. Completion of this feasibility study will be followed by
selection of partners, establishment of a joint venture, acquisition of permits and licenses,
detailed design development, selection of EPC contractors and terminal construction. The
project assumes SEZ development and the fact that construction will begin following the
completion of D1 site earthwork must be noted.
The final investment decision completes with business partner selection, which is
anticipated to take place in the second year, when necessary permits and licenses are
acquired.
24
(7) Project financing
Due in part to the private-sector leadership in LPG sales in Kenya, private investment is
reasonable if emphasis is placed on project development speed. With TTC at the helm of
investment in the project, Japanese financing through the parent company is being
planned. Although this will depend on the project scale, IFC, Africa Development Bank,
JICA and JBIC are being considered as potential lenders.
Environmental Management and Coordination Act Law pertaining to environmental protection and
authority.
Environment (Natural)
Water Act Chap. 372, 2002 and amended in 2012 Law pertaining to the protection and
water resources.
Environmental (Impact Assessment and Auditing) Regulations that provide legal basis to
assessment.
Environmental Management and Co-ordination (Air Regulations pertaining to the prevention and
Quality) Regulations, 2014, Legal Notice No. 34 mitigation of air pollution and standards for air
25
Laws, etc. Outline
quality and emissions.
Quality) Regulations, 2006, Legal Notice No. 120 water contamination and standards for water
(Waste Management) Regulations, 2006, Legal Notice control, covering solid wastes, industrial
Environmental Management and Co-ordination (Noise Regulations pertaining to the control of noise
and Excessive Vibration Pollution) (Control) and vibration as well as noise standards.
(Wetlands, River Banks, Lake Shores and Sea Shore wetland, riverbank, lakefront and coastal
Wildlife Conservation and Management Act (Cap Law on wildlife conservation and management.
376), (1985) and amended in 2019 It also prohibits unauthorized entry, tree felling
Prevention of Pollution in Coastal Zone and other Regulations pertaining to the protection and
Environment (society)
Coast Development Authority Act, 449, 1992 and Law granting the Coast Development Authority
Public Health Act (Cap. 242), 1986 and amended in Law pertaining to the maintenance of a healthy
Occupational Health and Safety Act, 2009 and Law pertaining to occupational health and
National Museums and Heritage Act (Cap 216), 2006 Law requiring impact assessment on cultural
County Government Act, 2012 Law that sets forth the authority and
governments.
Other
26
Laws, etc. Outline
Occupational Safety and Health Act, 2007 Law regulating health, safety and welfare of
Air quality Environmental Management and Parameters for ambient air quality
Co-ordination (Air Quality) Regulations, set forth in the standard: SOx, NOx,
hydrocarbons, VOC, O3
environment
sewage system
Vibration Pollution Co-ordination (Noise and Excessive noise levels are set by zone, such
27
regarding whether or not IEA procedure is necessary in this sector. For this reason, advance
confirmation with NEMA on this matter is required.
<Management of hydrocarbons>
Mass storage of natural gas, petroleum and all other flammable and volatile fuels
28
No. Step Outline
study and of the be studied in scoping include the following.
terms of reference Communication plan (target parties & timing)
(ToR))
Information disclosure for gathering views and opinions
Listing matters of concern to people
Definition of the terms of reference for the study regarding
major issues
3 Preparations for the The EIA study must address issues of concern found in the
EIA study terms of reference established by the project proponent through
consultations with relevant parties. Furthermore, the study is to
be conducted by specialists registered with the regulatory
authority. However, the responsibility for the study lies with the
party implementing the project..
4 Execution of the EIA The EIA study aims at identifying the following matters.
study Identifying impact from the project
Impact prediction
Impact assessment and analysis
Review into mitigation measures
Environmental monitoring and environmental management
planning
It must be added that effective consultations with local citizens
is the key in EIA planning and execution. Engagement of
relevant parties, including affected persons and regulatory
authorities, is necessary from the planning stage to the closing
stage of the project.
5 Review of the EIA The project proponent is to submit an EIA report, together with
report designated fee" to the regulatory authorities (in 10 hard copies
and digital media).
The report is examined from the standpoints of whether the
project complies with its terms of reference, whether the study
results are scientifically and technically appropriate, whether it
is clear for the general public to understand, whether
appropriate mitigation measures have been studied after
designating the negative impact, whether there is sufficient
record of deliberations with local citizens and other matters of
concern.
6 Review of the EIA The project proponent is to submit an EIA report, together with
report designated fee" to the regulatory authorities (in 10 hard copies
and digital media).
The report is examined from the standpoints of whether the
project complies with its terms of reference, whether the study
results are scientifically and technically appropriate, whether it
is clear for the general public to understand, whether
appropriate mitigation measures have been studied after
designating the negative impact, whether there is sufficient
record of deliberations with local citizens and other matters of
concern.
29
Figure 6; Procedure for the EIA process (Environment Impact Assessment Guidelines and
Administrative Procedures, NEMA, 2002)
(Impact on the environment and society (including safety) as a result of project execution)
The environmental impacts on the natural environment and to society predicted in the
project have been organized in a preliminary scoping matrix shown in Table 12.
30
Table 12: Scoping matrix (LPG receiving terminal & ocean floor pipeline)
Number Assessment Predicted impact
Impact category Construction Operation
stage stage
Pollution control measures
1 Air pollution B- B- Construction stage: Dust created by
construction work is likely to impact air
quality.
After operation startup: Exhaust from
LPG tankers is likely to impact air quality.
Additionally, incidents such as outflow or
leakage from the pipeline may affect air
quality.
2 Water pollution B- C Construction stage: Dredging and
earthwork may impact sea water quality.
Additionally, wastewater used in pressure
tests for the ocean floor pipeline may
affect water quality.
Operation stage: Domestic wastewater
may be released by terminal facilities.
Additionally, incidents such as outflow or
leakage from the pipeline may affect water
quality.
3 Waste B- B- Construction stage: Solid wastes and
construction wastes will be produced.
Operation stage: Wastes will be
generated with LPG tanker and terminal
operation.
4 Soil pollution D B- Construction stage:·No particular matter
of concern
Operation stage: There is possibility of
leakage at LPG transport in and out of
facilities, as well as from the pipeline.
5 Noise and B- C Construction stage: Construction work
Excessive Vibration may increase the noise level.
Pollution Operation stage: Operation may increase
the noise level.
6 Soil subsidence D D Construction and operation stages: No
particular concerns.
7 Foul odor D D Construction and operation stages: No
particular concerns.
8 Bottom sediment B- C Construction stage: Dredging, earthwork
and installation of ocean floor pipeline
may impact the bottom sediment quality.
Operation stage: Maintenance dredging
may impact the bottom sediment quality.
Environment (Natural)
9 Protected areas D D Construction & operation stages:
Protected areas are not found in the area
surrounding the project site.
10 Ecosystem B- C Construction stage: Construction work
may temporarily impact the marine
ecosystem. Also, mangrove clearing is
anticipated.
Operation stage: Although the marine
ecosystem could be affected by
wastewater, the extent of such effects will
be confirmed going forward.
11 Hydrometeor B- C Construction stage: Dredging and
earthwork may impact hydrology in the
surrounding area.
Operation stage: Although the marine
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Number Assessment Predicted impact
Impact category Construction Operation
stage stage
ecosystem could be affected by
wastewater, the extent of such effects will
be confirmed going forward.
12 Topography/geology B- D Construction stage: The terrain will be
altered.
Operation stage: No particular concerns.
Environment (society)
13 Land acquisition C D Construction stage: Residents may have
and relocation of to be relocated with land acquisition.
residents Operation stage:·No particular matter of
concern
14 The poor B+ B+ Construction & operation stages: Job
opportunities for local citizens are
expected to grow.
15 Minorities & C C Construction & operation stages: The
indigenous presence of minorities and/or indigenous
ethnicities ethnicities requires inspection in the
future.
16 Local economy, B+/C B+/C Construction stage: Job opportunities
such as will increase for local residents. At the
employment and same time, the project may impact
means of livelihood fisheries, etc.
Operation stage: The project will reduce
the use of firewood, resulting in shorter
cooking time and reduction of health
hazards caused by fumes. At the same
time, however, it may impact fisheries, etc.
17 Use of land and C C Construction stage: There is possibility
regional resources of impact on fisheries, etc.
Operation stage: There is possibility of
impact on fisheries, etc.
18 Water use D D Construction & operation stages:
Impact on water use is not anticipated in
the area surrounding the project site.
19 Existing social C B+ Construction stage: There is possibility
infrastructure & of traffic congestion by construction work
services vehicles.
Operation stage: The project will reduce
the use of firewood, resulting in reduction
of effort required for cooking with
firewood.
20 Social capital & D D Construction and adjoining stage:
social organization, No particular effects are anticipated.
such as local
decision-making
entities, etc.
21 Imbalance in D D Construction and adjoining stage:
damages and No particular effects are anticipated.
benefits
22 Conflict of interests D D Construction and adjoining stage:
within the region No particular effects are anticipated.
23 Cultural assets C D Construction stage: There is possibility
of cultural heritage property existing in the
area surrounding the project site.
Operation stage: No particular concerns.
24 Scenery C C Construction stage: There is possibility
of construction work affecting the
surrounding landscape.
Operation stage: There is possibility of
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Number Assessment Predicted impact
Impact category Construction Operation
stage stage
impact on the surrounding landscape.
25 Gender C C Construction and operation stages:
Latent effects need to be confirmed going
forward.
26 Rights of children C C Construction and operation stages:
Latent effects need to be confirmed going
forward.
27 HIV/AIDS and other B- C During construction: There is a risk of
infectious diseases infection with HIV, etc., due to influx and
movement of construction workers.
After operation startup: Safety and
public health risk in the region in the
operation stage must be examined in the
future.
28 Work environment B- B- Construction and operation stages:
(including There is a danger of accidents and other
occupational safety) latent risks. Latent risks and dangers need
to be confirmed going forward.
29 Accidents B- B- Construction and operation stages:
There is a danger of accidents and other
latent risks. Latent risks and dangers need
to be confirmed going forward.
30 Trans-boundary D B+ Construction stage: No impact of
impact and climate concern is anticipated.
change Operation stage: The project will reduce
the use of firewood, resulting in reduction
of CO2 emission.
Legend: A+/-: Significant positive/negative impact anticipated
B+/-: Positive/negative impact is anticipated to a certain degree
C: Impact is unknown
D: No impact anticipated
(Terms of reference (ToR) for environmental and social impact assessment (ESIA))
This project will require an environmental and social impact assessment (ESIA) study.
In the ESIA study, assessment of environmental impact will be followed by the preparation
of mitigation measures for predicted impacts and a monitoring program. ESIA is
conducted in compliance with Kenya's IEA legal framework. It must also be executed
according to the requirements of the lender, such as international banks. Based on the
above, the terms of reference (ToR) proposal for the project's ESIA study are shown in
Table 13.
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Environmental & social Study categories Study methods
impacts
Organize related standards
Evaluate impact and propose
mitigation measures and a
monitoring program
2 Water pollution Study into the current state of water Gather and review secondary
quality in areas where potential data
impacts are likely, such as the LPG On-site survey
terminal and ocean floor pipeline Baseline data for water quality
route (as needed)
Organize related standards
Evaluate impact and propose
mitigation measures and a
monitoring program
3 Waste Inspection of discharged waste Gather and review secondary
volume & type data
Study into waste storage, transport Interviews with related bodies
& handling method
Propose recommended mitigation
measures
4 Soil pollution Current soil quality conditions Gather and review secondary
Propose recommended mitigation data
measures On-site survey
5 Noise and Current noise conditions Gather and review secondary
excessive vibration Organize related standards data
pollution Evaluate impact and propose On-site survey
mitigation measures and a Baseline data for noise (as
monitoring program needed)
6 Bottom sediment Current bottom sediment conditions Gather and review secondary
on the pipeline route data
Evaluate impact and propose Interviews with related bodies
mitigation measures and a
monitoring program
7 Ecosystem Current state of underwater and Gather and review secondary
land ecosystems, including data
mangrove On-site survey
Identification of the status of the Interviews with related bodies
examined ecosystems (protected
areas, protected species, etc.)
Evaluate major impact of business
and propose mitigation measures
8 Hydrometeor Inspection of general conditions Gather and review secondary
related to water flow, such as water data
flow volume and peak flow volume On-site survey
in surrounding areas Interviews with related bodies
Evaluate major impact of business
and propose mitigation measures
9 Topography/geology Current conditions on terrain and Gather and review secondary
soil quality data
Evaluate impact and propose On-site survey
mitigation measures and a
monitoring program
10 Non-voluntary Land acquisition and inspection of Gather and review secondary
resident relocation the need of resident relocation data
Study into options to minimize On-site survey
non-voluntary resident relocation Interviews & consultations with
Execution of social economic study relevant organizations &
& preparations for resident communities
relocation plan
11 Lifestyle/livelihood Baseline data on social, Gather and review secondary
demographic & economic data
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Environmental & social Study categories Study methods
impacts
characteristics of the communities On-site survey
surrounding the project site, Interviews & consultations with
including persons in fisheries surrounding communities
Identification of receptors
vulnerable to impacts in the area
surrounding the project site
Evaluate impact and propose
mitigation measures and a
monitoring program
12 Cultural assets Study of the current status of Gather and review secondary
cultural heritage properties in and data
surrounding the project site On-site survey
Evaluate impact and propose Interviews with related bodies
mitigation measures and a
monitoring program
13 Scenery Study of the current status of Gather and review secondary
landscape in and surrounding the data
project site On-site survey
Evaluate impact and propose
mitigation measures and a
monitoring program
14 Work environment Identification of hazards and risks in Gather and review secondary
labor data
Systematization of relevant Study into applicability of
standards, including gas handling Japanese standards on gas
Propose recommended mitigation handling on the project
measures
15 Safety and public Identification of hazards and risks Gather and review secondary
health risk in the to communities data
region Propose recommended mitigation On-site survey
measures
(Study into environmental improvement effect, environmental and social impacts, etc.)
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The project's environmental improvement effect and significant effect on the
environment and society are the reduction in use of kerosene that produces large quantity
of fume and soot and replacement of firewood and coal with LPG.
Additionally, firewood and coal consumes time and effort for preparation and cleanup.
On top of that, poor thermal efficiency makes cooking time-consuming. In urban areas
where increasing number of women participate in the job market, wider use of LPG has
led to the reduction of workload for women who run households. In rural areas, it is
believed to contribute to reducing the workload of women and children responsible for
picking firewood.
<Assumptions>
All of the LPG supply in Kenya will be used for cooking.
Of the total volume, 33.3% will replace kerosene. (Source: Figure 52 Cooking heat
sources, Report on the Survey of Potential Needs in the BOP Business: Energy
Sector in Kenya, JETRO, 2010)
<Equation>
CO2 emission reduced per year by the project (CO2t)
= Total kerosene volume replaced by LPG x Emission coefficient for kerosene
— Total LPG volume that replaced kerosene × LPG emission coefficient
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Replaced kerosene volume = 4,613,948 GJ ÷ 36.70 GJ/kl = 125,720 kl
Reduction in CO2 emission (CO2t) per ear under the project, assuming that the market
scale is roughly 1 million tons and the project gains a 25% share:
= 125,720 kl x 2.49 tCO2/kl - 90,825 MT x 3.00 tCO2/t
= 313,042 tCO2 – 272,475 tCO2
= 40,567 tCO2
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(11) Economic assessment
In this feasibility study, economic assessment was based on analysis and forecast of
LPG demand in the country.
Phase 1 of the project is assumed to startup at the point when domestic demand
reaches 300,000 tons. Phase 2 is to start in the 10th year when demand is expected to
rise to 1 million tons. Regarding storage tank turnover, the conservative figure of 24
turnovers (twice a month) was selected. Phase 2 turnover is projected at 10 turnovers.
LPG wholesale price in Mombasa City as of October 2018, obtained in interviews
conducted for the study, was used as a benchmark for examining price competitiveness.
Regarding jetty construction cost, the two alternatives of construction by the project
owner (Scenario A) and construction by KPA (Scenario B). In the case of Scenario B, the
port tariff to be paid to KPA will be added to the cost by the project owner.
Furthermore, there is information that investment into LPG business is tax-free.
(Provision found in Finance Act; investigation currently underway.) Therefore, cases
involving exemption from VAT, import tax and other levies were also taken into account in
the scenario analysis.
Scenario A
A-i) If we pay all project costs
A-ii) If we are exempt from paying taxes on project costs
It will be difficult to achieve business results in Phase 1 because the price will not be
able to capture the market.
Scenario B
B-i) If we do not pay for costs of building a jetty but pay for costs of building a terminal
The price in Phase 1 is equivalent to the current whole sale price. Some costs were
conservatively estimated as the details had not been clarified at the time of this survey.
Although we need to survey some costs sufficiently that have not been visible, Scenario B
should be continuously considered to make the project successful.
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The prices in Phase 1 and Phase 2 fall below the current price. As mentioned earlier,
although cost items need to be sufficiently surveyed, we have found that this scenario
needs to be continuously considered to make the project successful.
(12) Expected benefits for Kenya and benefits (economic effects) to Japan to be
gained from the project
Reduction Amount
For this survey, we interviewed Japanese experts (consultants, terminal builders, and
shipping companies) and found that ”Hazard Prevention Rules*” that the High Pressure
Gas Safety Law requires operators to make and a plan for education on operational safety
in accordance with the rules work effectively in the operation of LPG terminals in Japan.
(*Operators are obliged to make hazard prevention rules on maintenance and
management of equipment required to operate LPG facilities safely.)
For this reason, we expect that this project will bring benefits to Japan by applying rules
based on Japan’s Hazard Prevention Rules and conducting activities to raise Kenya’s
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awareness of the necessity for laws. We are also considering cooperating in education
mainly with regards to safety control. We aim to consequently continue to operate
terminals safely and optimally. While there is no LPG refrigerated storage tank especially
in Kenya, Japan has many of them. Therefore, Japanese LPG operators have acquired
much knowledge of them.
As many international standards have been established for designing and building LPG
terminals, we have adopted API’s international standards and Kenyan and Indian rules in
basic design for this project. While design and construction based on these rules ensure
the facility is safe, rules have not been established especially in many developing
countries, such as rules on safety maintenance and control in operation, daily inspection
and regular inspection, and discussion bodies with the organizations and operators
concerned. For this reason, they operate without sufficiently controlling safety, failing to
prevent accidents. In addition, some operators are forced to operate inefficiently to
comply with the rules that were established later. The above cases lead to an increase in
operating costs. Therefore, we would like to avoid this by observing Japanese safety
standards from the beginning.
Table15: Rules that were applied during the process of basic design for the project
It is also important in the future FEED phase to select an operator for this project from
the perspective of hazard prevention rules and to create a detailed design in
consideration of operational and safety control. Safe and optimum operational structure
leads to an increase in LPG terminal rotation speed (increase in the amount of LPG
handled), directly enhancing cost competitiveness as estimated for economic potential.
Adopting Japanese safety standards as Kenyan standards will lower the barriers for the
entry of Japanese companies, consequently bringing about economic benefits to Japan
as well.
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5. Action Plan and Issues to Implement Project
(1) Progress of the efforts made by the authorities concerned and implementing
organizations
The authorities concerned, which hold the key to the project, are the MoPM, which
promotes the expansion of LPG, the MoI and its subordinate SEZA, which controls the
development of the SEZ, the KPA, which owns land in the Dongo Kundu district and
manages ports in the SEZ, and the MoT, which supervises the KPA. Progress in
discussions between the authorities and organizations is as follows.
1) MoPM
The MoPM has expressed its intention to support this project, which enables the
ministry to take measures to improve the Import Terminal Project, which has become a
difficult problem in terms of prices, while increasing the popularity of LPG amongst
citizens.
It also indicated the possibility that the market will mature quickly in relation to rapidly
increasing demand for LPG because not only the import terminal but also cylinder
manufacturing and filling projects, and new LPG brands are greatly involved. The MoPM
expects that Pay As You Go (advance payment for use) using smart meters and mobile
phones will also expand.
The MoPE wants this project to be implemented speedily.
41
(2) Expected utilization of political support (Consideration of possibility of utilizing
various tools: inviting or sending experts)
We are considering holding seminars on Japanese safety standards by referring to the
“Project for Surveying Feasibility of Projects for Building High-Quality Infrastructure
Overseas” led by the Ministry of Economy, Trade and Industry.
(3) Repose to items requested or pointed out by Kenyan government officials and
survey required to improve project proposals
Kenyan government officials have strongly requested conducting training on
operational know-how because there is no terminal for LPG refrigerated storage tanks in
Kenya. In addition, there is an increasing need for setting safety standards in anticipation
of promoting LPG in the future and sharing know-how because accidents related to
inferior cylinders have caused consumers to feel anxious about LPG.
(4) Possibility of expansion into other countries and measures to promote expansion
There is a high possibility of exporting LPG to landlocked countries Uganda and
Rwanda through the northern corridor of East Africa as the countries share borders with
Kenya and have created the East African Community (EAC). As LPG popularization has
progressed to the same level as Kenya, there appears to be potential for expansion.
This survey found that all private LPG operators anticipated the export of LPG to
Uganda. They have especially high expectations for the extension of the Standard Gauge
Railway (SGR) to Uganda, which opened from the Port of Mombasa to Nairobi. Some
operators have already started building storage facilities in Kisumu, which shares a border
in Lake Victoria with Uganda.
We plan to build a 66,000-ton terminal in Phase 2 of this project, which has a capacity
to export LPG to neighboring countries. The SEZ will be developed considering
interaction with the SGR, which will support horizontal expansion.
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increasing year after year (LPG Profile as on 01.07.2018, Petroleum Planning & Analysis
Cell, Ministry of Petroleum & Natural Gas, India). Thus, relatively many Indian operators
have advanced expertise on terminal operation. In addition, Indian communities have long
been established in Kenya due to the geographical proximity of India and Kenya. AGOL
was actually founded by an Indian individual who immigrated to Kenya. For this reason, it
is relatively common for Indian companies to enter Kenya.
So, we have decided to aim to cooperate in the LPG business in Kenya through this
project with Indian companies.
In this survey, we checked Indian listed and unlisted energy, oil, and gas companies
that have been registered in Kenya using the system of SPEEDA, a Japanese database
company, and found 336 companies. Based on this result, we examined their experience
in operating LPG terminals and relationships with our company and narrowed these
companies down into five candidates. We will engage in concrete negotiations
considering each company’s experience in operating LPG terminals and motivation to
enter Kenya.
We are also specifically considering using Indian companies to build the terminal. For
the basic design of the terminal in this survey, we have adopted the Indian engineering
company. Although we plan to start FEED after selecting a terminal operating partner, we
will continuously move forward on the premise of using an Indian company as an
engineering company.
- end -
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