Kenya: Refinery wants out of pipeline union

Wednesday February 27 2019

The crude oil storage tanks at Kenya Petroleum Refinery in Changamwe, Mombasa. Kenya Pipeline Company is pushing for a renewal of the lease after the facility turned out to be an important revenue stream. PHOTO | LABAN WALLOGA | NMG


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.

This creates uncertainty about the operations of KPRL, which was converted into a storage facility after halting refining operations in 2013.

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.

Hudson Andambi, KPC acting managing director, said the process of renewing the lease is ongoing.

He said that additional storage capacity has helped improve operational efficiency and flexibility.


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.

KPRL is also uncomfortable with plans by KPC to invest about $65 million in a bulk liquefied petroleum gas handling and storage facility on its land.

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.

KPC has also spent $3.8 million over the past 20 months paying interest on KPRL bank loans.

Petroleum reserves

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.

KPRL has 45 tanks with a total storage capacity of 484 million litres in Mombasa, of which 254 million litres is reserved for refined products and 233 million litres for crude oil.

Taking over the KPRL tanks increased KPC’s total capacity to 574 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.

“KPC earned Ksh400 million ($4 million) from KPRL last year. This shows that storage is serious business,” Petroleum Principal Secretary Andrew Kamau told The EastAfrican.

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.

The additional tanks, with a capacity of 133 million litres, have more than doubled the storage capacity, from 100 million litres to 233 million litres.