Development of a Bulk LPG Import and Distribution Business in Puntland and Somaliland Ministry of Environment, Wildlife and Tourism TABLE OF CONTENTS TABLES Executive Summary ������������������������������������������������������������������������������������������������18 TABLE 1: PFYDP-2 ECONOMIC GROWTH PROJECTIONS ............................................... 20 1. Introduction ...... �������������������������������������������������������������������������������������������������������19 TABLE 2: EVALUATION & MONITORING PLAN FOR LPG (AND KEROSENE) .................... 21 2. Situational Review for LPG in Puntland ��������������������������������������������������������������������19 TABLE 3: SUMMARY OF HOUSEHOLD FUEL SURVEY - PUNTLAND .............................22 2.1 Overview ...... ���������������������������������������������������������������������������������������������������������������������� 19 TABLE 4: SUMMARY OF HOUSEHOLD FUEL SURVEY – SOMALILAND ....................22 2.2 The Second Puntland Five-Year Development Plan 2014-2018 (PFYDP-2) ....................... 19 TABLE 5: LGP IMPORT COST BUILD-UP - PUNTLAND ............................................... 24 2.2 Regulatory and Institutional Framework for Energy ........................................................ 21 TABLE 6: SOMGAS COMPANY - SOMALILAND ..........................................................25 3. Market Survey/ Community Workshops .......................................................... 21 TABLE 7: LPG MARKET SWOT ANALYSIS PUNTLAND ................................................35 4. Results of Market Survey and Key Findings ..........................................................23 TABLE 8: LPG DEMAND ESTIMATES ���������������������������������������������������������������������������� 36 4.1 LPG Survey and Recording of Results .............................................................................. 23 4.2 Existing Market and Structure - Puntland and Somaliland ............................................. 23 TABLE 9: LPG PROMOTION – STRATEGY/ PLAN SUMMARY ...................................... 38 5. Historical Market Demand �������������������������������������������������������������������������������������� 36 TABLE 10: VOLUME FORECASTS PUNTLAND ......................................................... 39 6. Supply Economics/ Value Chain Analysis ......................................................... 36 7.1 LPG Market Penetration of 25% in the National Development Plan .......................36 7.2 Unrestricted LPG Supply Chain ����������������������������������������������������������������������������������������� 37 CHARTS 7.3 Optimisation of Cylinder Sizes ����������������������������������������������������������������������������������������� 37 CHART 1: HOUSEHOLD MONTHLY INCOME – CHARCOAL CONSUMERS PUNTLAND .27 7.4 Lower Barriers to Market Entry ����������������������������������������������������������������������������������������� 37 CHART 2: HOUSEHOLD MONTHLY INCOME – CHARCOAL CONSUMERS SOMALILAND .27 7.5 Government Interventions/Facilitation .............................................................................. 37 CHART 3: AVERAGE MONTHLY HOUSEHOLD SPEND ON CHARCOAL PUNTLAND ..........28 7.6 LPG Demand Promotion - Strategy & Action Plan ........................................................ 37 7.7 LPG Demand Forecast (Provisional) ..............................................................................38 CHART 4: AVERAGE MONTHLY SPEND ON LPG PUNTLAND .......................................28 8. Main Conclusions �����������������������������������������������������������������������������������������������40 CHART 5: AVERAGE MONTHLY HOUSEHOLD SPEND ON CHARCOAL SOMALILAND 29 APPENDIX 1: QUESTIONNAIRES USED AS BASIS FOR MARKET SURVEY ....................41 CHART 6: AVERAGE MONTHLY SPEND ON LPG SOMALILAND ...................................... 30 APPENDIX 2: COMMUNITY WORKSHOP PUNTLAND ............................................... 47 CHART 7: MONTHLY FUELS SPEND SAMPLED HOUSEHOLDS PUNTLAND ................... 30 APPENDIX 3: COMMUNITY WORKSHOP SOMALILAND ............................................... 50 CHART 8: MONTHLY FUELS SPEND SAMPLED HOUSEHOLDS SOMALILAND ..........31 CHART 9: UNIT PRICES OF CHARCOAL AND LPG PUNTLAND .......................................31 CHART 10: UNIT PRICES OF CHARCOAL AND LPG SOMALILAND .............................32 CHART 11: BARRIERS TO SWITCHING FROM CHARCOAL TO LPG PUNTLAND ..........33 CHART 12: BARRIERS TO SWITCHING FROM CHARCOAL TO LPG SOMALILAND ......... 34 16 17 Executive Summary from charcoal to LPG is massive. 1. Introduction The approach and methodology followed and the detailed analysis underlying the charts and The 5-Year Development Plan 2014-18 of the Historical LPG demand data is unreliable and does The first phase of this assignment has required us Government of Puntland puts great emphasis to undertake a market study with the objectives of: other data provided herein are set out in a not lend itself to form a basis for estimating future Supplementary Report, which may be viewed along on its determination to address the catastrophic demand. We estimate current annual demand as environmental impact of widespread use of • Reporting on the present supply and distribution with survey results in the Market Survey Puntland 400 tonnes per annum but believe this figure is channels for LPG into Puntland and Somaliland. and Somaliland Dropbox Folder (access information charcoal as a domestic fuel. It has set a target of conservative. 25% of households using LPG instead of charcoal • Developing an understanding of current users, to be advised). within the plan period up to 2018. Our demand forecasts for Puntland are therefore supply economics and market pricing. based on there being an upward step-change in 2. Situational Review for LPG in Channoil sub-contracted a Nairobi based consultant demand driven by Government policies and support • Identifying the opportunity for expanding the Puntland having regional experience to lead the market survey designed to remove the main barriers to growth. LPG market to reduce consumption of wood/ work in Puntland and Somaliland, and a Garowe We have developed three LPG demand scenarios charcoal, to reduce the impact of deforestation 2.1 Overview based consultant to conduct the field survey work based on different assumed levels of Government on the environment, and to displace the use of and to organise Community Workshops key towns intervention and support. Our Base case assumes kerosene, a fuel that, along with wood/ charcoal The consultants conducting this study have carried in Puntland and Somaliland. The sub-contractors achieving a market demand of 10,000 tonnes per can present health hazards. out a documentation review to gather information worked under the direction of Channoil Consulting. of a general socio-economic nature and, where annum by year 3 of the new programme and 10% • Assessing market pricing strategies and their available, that relating to LPG. Outside the UNDP The survey focussed predominantly on households, per annum growth thereafter. impact on future demand expectations. sponsored studies of 20073 and 20104, overall, recognised as the main target for making the switch LPG demand growth will be assured through: from charcoal to LPG. 1,258 households were • Gaining an understanding of the attitudes of information is quite limited but we have been able surveyed in Puntland, of which 83% were charcoal • Reduced import costs arising from investment the key energy market participants and other to refer to the recently published Second Puntland users. 968 households were surveyed in Somaliland, in a bulk import terminal and more competitive stakeholders to the prospect of a significant Five Year Development Plan (2014-2018), which of which 85% were charcoal users. Kerosene hardly pricing expansion of the LPG market. has proved to be useful reference for the current situation and future plans. featured as a domestic fuel. The very extensive 1 • Introduction of smaller cylinders and financial Petroleum Focus Consultants (PFC) of Nairobi were survey results have been logged and are available support to cover up-front costs of cylinders and engaged as sub-consultants to lead the market 2.2 The Second Puntland Five-Year in electronic format. burners survey work in Puntland and Somaliland. They Development Plan 2014-2018 (PFYDP-2) Charcoal use is very extensive. It is sold in sacks/ designed the questionnaires targeted at different • No taxes on LPG or equipment allied if necessary This document represents the most comprehensive packages having an average content of 36 KG. sectors of the market, which were used by Sahan to appropriate taxation of charcoal Group (SG)2 of Garowe, Puntland, a second sub- and up to date source of socio-economic planning Prices vary widely and in Bosaso average 40$ per information for various sectors, including energy. sack. LPG is imported into both regions both in • Improving public awareness of the benefits contractor, engaged to conduct the field survey cylinders and ISO Containers for filling cylinders of LPG and allying concerns with regard to work. SG also organised the Community workshops Throughout the plan there is an expression of in-country. Existing LPG prices are high and range domestic use conducted in key towns, 3 in Puntland and 2 in urgency to address the environmental challenge across Puntland from 2-7 $/Kg. Usage is therefore Somaliland. The sub-contractors