Kenya, keen to entrench its geostrategic role as the hub of the oil trading business in East Africa, will shortly be in the market for an investor to build a massive oil jetty under a private-public partnership arrangement.

The chief executive officer of the National Oil Corporation, Summaya Athman, told The EastAfrican that most of the preliminary work had been done, setting the stage for procurement of the international investor for the facility, estimated to cost between $80 million and $100 million.

Feasibility studies have been concluded and an environmental impact assessment process done, while stakeholder consultations are ongoing, said Ms Athman.

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The oil jetty project is one of the strategic investments Kenya is counting on to help it remain the dominant oil supply route to its landlocked neighbours Uganda, Rwanda, Burundi and eastern Democratic Republic of Congo.

Investor appetite for the facility is predicted to be high, given the rapid growth in demand for petroleum products in East Africa and the inadequate petroleum offloading and storage facilities at the Mombasa port.

Currently, the country has only one main oil jetty, at Kipevu, that offloads petroleum imports for Kenya, Uganda, Rwanda and Burundi.

And, by international standards, this jetty is still limited in capacity as it can only handle ships of up to 85,000 metric tonnes.

It is supported by a smaller jetty at Shimanzi that accommodates much smaller cargo of up to 30,000 metric tonnes.

Imports through this smaller jetty are more expensive by at least $10 to $25 per metric tonne, which explains the long queues of vessels in Mombasa waiting to discharge petroleum products. This congestion leads to higher freight and demurrage charges to importers.

At the same time, Kenya is looking for Ksh100 billion ($1.2 billion) to upgrade the Mombasa crude oil refinery to increase its capacity. A meeting of Kenya Petroleum Refineries Ltd directors next month is expected to approve the search for funds.

READ: Kenya in $1.2bn oil refinery plan

Separately, the state-owned Kenya Pipeline Company is in the middle of floating a tender for construction of new, bigger oil pipeline to replace the existing 34-year-old pipeline, which will be uneconomical to run after 2014.

The pipeline is one of the key petroleum infrastructure facilities in the region, transporting more than 80 per cent of petroleum products to Kigali, Kampala and Bujumbura.

Even after the company last year completed construction of a parallel pipeline from Nairobi to Eldoret, pipeline capacity in East Africa remains low.

And, with KPC over the years concentrating on developing pipeline capacity at the expense of tank farms, the oil supply chain in East Africa continues to lack storage facilities.

The only storage tanks of note are at the Kipevu oil storage facility, which was built in the 1980s to provide spare storage over and above operational requirements for the country.

But due to growing demand, the Kipevu tanks no longer serve as spare capacity. The system operates hand-to-mouth, forcing ships to wait as storage space is created.

In most cases, the operations of the Mombasa-Nairobi pipeline take up all the available storage in Nairobi, thus causing stoppage of the line, which in turn leads to ships queuing in Mombasa.

Consequently, any disruption of the pumping of petroleum products beyond two days or a delay of a ship delivering such products leads to shortages in Kenya, Uganda, Rwanda and Burundi.

Investment opportunity

Another major investment in the oil supply chain in East Africa is the new privately developed LPG storage and import facility at Miritini that is nearing completion.

Known as the Africa Gas and Oil Company, this facility is the largest LPG jetty in Africa.

Touted by the Ministry of Energy as an example of a successful private-public partnership, it dwarfs the existing facilities both in capacity and in the use of modern technology.

ALSO READ: Firms seek to meet LPG demands

Oil trading conglomerate Vitol of the Netherlands recently made the government a proposal to build 13 storage tanks with a capacity of
300,000 cubic metres at a cost of $113 million.

The company, a joint venture between the Dutch investor and local company Riva Oils Ltd, proposed to the government that the tanks be used for storing the country’s strategic reserves.

The Dutch company said once the tanks are built, they can be leased to the Kenya Pipeline Company at a fee.

The financing model has turned out to be controversial. The investor has asked the government to approve a tariff for leasing the tanks.

It also proposes introduction of new taxes and an enhanced petroleum development levy to purchase the stocks that will be stored in the tanks.

The Treasury has refused to approve the financing model on the grounds that it amounts to forcing members of the public to indirectly fund the building of storage tanks for Vitol and its local partner.