Efficiency in the supply of petroleum products in East Africa could significantly improve when the Kenya Pipeline Company takes over the Mombasa refinery.
A source told The EastAfrican that KPC has appointed audit firm PricewaterhouseCoopers to offer transaction advisory services for the acquisition and carry out a comprehensive study on the viability of the facility. The source added that the government is treating the takeover as a matter of urgency and that is why KPC has awarded the contract in a record two months after putting out the tender.
The move has sparked optimism in the petroleum industry, where oil marketers are operating on thinning margins. KPC is to take over the management of Kenya Petroleum Refinery Ltd (KPRL), which has been mothballed since the exit of Indian company Essar Energy in 2013.
READ: Kenya Pipeline Company seeking advisor in refinery takeover
The impeding takeover is expected to significantly reduce the perennial inefficiencies that characterise the petroleum products supply chain, which translate into high prices at the pump.
More critically, the increased storage capacity is expected to save oil marketers millions of dollars paid to shipping companies as demurrage costs.
Conservative estimates show that oil marketers will save $12 million annually in demurrage costs, considering that shipping companies surcharge $40,000 per day for an 80,000 tonne vessel, which at times may stay for up to 30 days on the high seas before discharging imported refined products.
The increased storage capacity is therefore expected to reduce the number of days ships take to discharge cargo to about five days.
“We feel the increased storage capacity will help the country save a lot,” said Powell Maimba, Petroleum Institute of East Africa chairman.
However, the takeover is not a smooth affair. Already, the KPRL board chaired by Suleiman Shakombo has opposed the takeover, saying the Ministry of Energy is not following the Companies Act 2005.
KPRL is 100 per cent owned by the government after it paid $5 million for the 50 per cent stake that was controlled by Essar Energy.
READ: Kenya buys out Essar, prepares for handling of Turkana oil
Observers contend that the real issues at play is protecting of jobs and assets owned by KPRL, including the land the facility sits on.
KPRL has a workforce of 200.
“There will be job losses, but the main issue is the assets and how they will be transferred to KPC,” said Patrick Obath, Adam Smith International Africa associate director.
The major concern, however, is whether KPC can raise the massive resources required to rehabilitate the 63-year-old KPRL storage facilities.
Total capacity
KPRL has 45 tanks for various products with a total capacity of 484 million litres. Of the 45, 17 can accommodate 254 million litres of refined products and the rest 233 million litres of crude.
On its part, KPC has seven storage depots with a total capacity of 612 million litres. This means that with the takeover, the company will have storage facilities with a capacity of over one billion litres.
But as much as 60 per cent of KPC’s existing tankage is in need of major refurbishment, according to a report by PwC. Considering that KPC has been facing challenges in mobilising resources to refurbish its own storage facilities, bringing the KPRL tanks into its fold is bound to increase the burden on the parastatal.
The pressure on KPC, which recently unveiled an ambitious Vision 2025 growth strategy, is bound to be compounded by the growing demand for petroleum products in Kenya.