In 2009, Kofi Nketsia-Tabiri was thriving in his career as the regional director for the multi-million US dollar clean energy investment fund, E+Co (since restructured as Persistent Energy Partners). He was managing the portfolios for 16 African countries from the office in Johannesburg, South Africa.
Nketsia-Tabiri had been consulting in the energy sector for close to a decade at that time. “After university, I acted as an advisor or business development consultant for small and medium enterprises involved in the modern energy sector. The aim was to convince households and businesses to move away from traditional types of fuels such as charcoal, kerosene and wood,” says Nketsia-Tabiri.
As investment manager and later regional director for E+Co, he continued to support and drive change but became frustrated at the slow pace of adoption of cleaner forms of energy. “After advising companies for so long about this necessity, I was questioning whether my advice was working,” he recalls. “If you look at sub-Saharan Africa, almost 75% of households still depend on traditional fuels which bothered me.”
Nketsia-Tabiri decided to establish his own company in his home country Ghana. The vision was to make liquefied petroleum gas (LPG) available, affordable and accessible to everyone who wanted to adopt the cleaner energy source. He returned to Ghana and, for a year, drove around the country, talking to potential customers and gaining market insight.
Researching the gaps in the sector
“It was fun and frustrating. Those early days of the research phase tested my passion and fortitude for the journey ahead.” Nketsia-Tabiri was doing what he had always advised other entrepreneurs and businesspeople to do: develop a business plan not to simply satisfy funders but to guide the development of the company.
At the time, LPG was not perceived as a viable energy option by consumers in the rural areas of Ghana because of a misconception it was too expensive. Field research revealed a range of different realities in the peri-urban and rural areas. In some, there was a shortage of gas supply; in others, there was no gas infrastructure or equipment; while in certain areas there was simply no awareness that LPG was an option.
For Nketsia-Tabiri it was clear: it all boiled down to logistical inefficiencies.
“The LPG sector was not new, it had existed in Ghana for a while, but we aspired to bring innovation and efficiency and ramp-up growth, specifically in the rural areas,” he explains.
Finding funding for initial growth
Nketsia-Tabiri used his savings along with some money provided by his wife and received further financial support from two university friends who had moved abroad. This amounted to about $80,000, which he used to launch XpressGas in 2010.
During his field research trips, Nketsia-Tabiri had already lined up some potential customers. The company focused on both B2B and B2C from the get-go. The first end-user was a glass manufacturing company using LPG in its furnace. By 2011, XpressGas had also signed up three LPG refilling stations as customers.
“We had just three staff members: I was the front man in the field, engaging with customers and presenting our proposition.” The company provided technical and safety services to make sure even first-time LPG users had the canisters and equipment they needed, set up in a safe way for operations.
To overcome some of the logistics challenges identified earlier, Nketsia-Tabiri opted not to use third-party transport companies for the deliveries but rather to rent vehicles and handle the distribution directly.
By 2013, the company was supplying 13 refilling stations and steadily growing its end-customer base.
“Frankly, we just did not have the capital to procure gas and supply all 13 stations,” Nketsia-Tabiri remembers. “That is what triggered us to talk to the local banks for financing.”
The loans secured assisted with further growth and the company is currently the second largest LPG distributor in Ghana in terms of volume. Back in 2012, it ranked around 50.
Over time, XpressGas looked at new approaches to reach the underserved markets and distinguish itself from its competitors. In Ghana, it faces competition from local companies such as GOIL and Andev and international players such as Total and Shell.
“The oil and gas sector is cutthroat,” reveals Nketsia-Tabiri. “Because the product is commoditised, companies have to compete and differentiate themselves on other factors. For XpressGas, the focus was safety services, business development for its customers and innovative supply models.”
Today, the company has 35,000 gas cylinders under management and more than 7,000 customers through its subscription swap-and-go business model. “Through this service, you pay a registration fee as well as an annual subscription which entitles you to all the technical support you may require. It also takes care of your delivery costs,” Nketsia-Tabiri explains. These customers then order refills from XpressGas. The company goes to the end-user’s address to swap the empty canisters for full ones after payment. The canisters remain the property of XpressGas, taking away one of the barriers to entry for consumers who cannot afford to buy their own.
The target is to reach 20,000 customers by the end of the year and to hit the 100,000 mark within three years, says Nketsia-Tabiri.
It is also testing a pay-as-you-cook model where the company provides end-users with the technology to make micro-purchases of LPG using mobile technology. The model, which has been tried by other players in the sector, allows customers to prepay for gas on their mobile phone, activating a valve to supply only the purchased amount. So far, XpressGas has tested 120 units. “This is a low-margin, high-volume business that targets end-users on the lower level of the energy pyramid who would typically use charcoal for cooking, but who can afford only small amounts of charcoal at a time. They would not have the capital to buy full cylinders of gas.”
Promising growth potential, locally and regionally
XpressGas currently owns three LPG refill stations, 23 LPG bulk road vehicles, and serves a network of 53 third-party-owned stations across all the regions of Ghana.
“Our growth plan is to make sure we have established and deepened our footprint across Ghana, first,” notes Nketsia-Tabiri. “We want to refine our business models and make sure it is well tested.”
Even then, expansion cross-border won’t be simple. Thanks to his experience in other markets prior to establishing XpressGas, Nketsia-Tabiri is aware companies cannot simply transplant one business model in another region. However, this does not diminish the chances of XpressGas expanding to other countries. He believes there is considerable potential in the clean cooking sector that would be attractive for XpressGas at the right time. “I have been privileged to have gained insight into other African markets through my previous positions. I am familiar with the regulation and policies in some East African countries,” he says of possible target markets.
“In Ghana, we have close to two million households that don’t have access to clean cooking fuels. In Africa, most of the sub-Saharan African countries still depend on traditional fuels. We will initially focus on Ghana and then, the world is ours.”