Essar Energy
Kenya Petroleum Refinery Ltd
Kenya Pipeline Company
Kipevu Oil Storage Facility
Tullow Oil

Kenya: Refinery wants out of pipeline union

Three years after the Kenya Pipeline Company took over the Kenya Petroleum Refinery Ltd in a government-forced merger, the lease under which the union was created is set to expire in March.

Since the exit of Indian investor Essar Energy in 2014, KPRL has largely remained a liability for Kenyan taxpayers, who had to shoulder its financial burden. In 2017, the government offered the refinery to KPC under a three-year lease.

Now, KPC is pushing for a renewal of the lease after the facility turned out to be an important revenue stream, earning it $20 million over the past 20 months.

However, it has emerged that some KPRL board members are opposed to the renewal of the lease and want the company to operate independently after realising that it can make money both for oil marketers and for the crude that Tullow Oil has been storing awaiting exportation.

“There is a debate within the board on whether the lease should be renewed or not. The popular feeling is that KPRL no longer needs KPC to manage its storage facilities,” said a source privy to the matter.

But KPC is determined to hold on to KPRL after investing $3 million in rehabilitating and modernising the storage tanks, which has helped to streamline transportation of fuel and enabled Kenya to boost its strategic petroleum reserves from 12 days to 30 days.

Before KPRL was converted into a storage facility, Kenya used to depend entirely on the Kipevu Oil Storage Facility with its capacity of 320 million litres.

The enhanced capacity has been instrumental in facilitating quick berthing of vessels to discharge fuel, in the process saving the country about $2 million per month that was being incurred in demurrage charges.

He said the decision to pursue the renewal of the lease lies with KPC, which has been servicing the interest on KPRL’s loans and has also been paying KPRL staff salaries.

While KPRL wants to take back its storage tanks, the petroleum industry is apprehensive about the company’s ability to manage the business, considering its past battles with oil marketing companies.

In addition, there are reservations about KPRL’s ability to continue servicing the loans to banks as well as the compensation claims to oil marketing companies, which stood at $95 million at the time it entered into the lease agreement with KPC.

To improve the importation, transportation and distribution of petroleum, KPC has invested $52.5 million to increase the storage capacity in its Nairobi depot. The project involved construction of four additional tanks following the completion of the new Mombasa-Nairobi pipeline.

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