Kenya’s crude oil refinery has started storing fuel for marketers at a fee awaiting the government’s final decision about the future of the Mombasa based plant.

Kenya Petroleum Refineries Ltd (KPRL) started hospitality services early this year to make use of available storage capacity of 192,000 cubic metres for refined liquid products and 1,200 tonnes of liquefied petroleum gas (LPG).

East Africa now wholly depends on imported refined products due to the failure by the Kenyan government and Essar of India to agree on the $1.5 billion modernisation project for the Mombasa-based plant.

The refinery, in which the Kenyan government and Essar Energy own a 50 per cent share each, is currently lying idle as it has not processed Murban crude oil since September 4, 2013 after exhausting the last stock of raw material.

KPRL’s management said the decision to store imported refined products for marketers at a fee was made because the plant is interconnected with private depots in Mombasa and the petroleum pipeline system to Nairobi.

“The tariff for handling liquid products is $7 and LPG $25 per cubic metre exclusive of 16 per cent value added tax but it is negotiable if volumes are large,” said communications and human resources manager Martin Wahome.

Marketing firms are able to use the Kenya Pipeline Company (KPC) facility to pump refined products inland and utilitise the segregated  truck loading facility of KPRL to transfer LPG,  petrol, diesel and fuel oil to road tankers.

The refinery earns an average of Ksh10 million ($111,111) for handling LPG, petrol, diesel, dual purpose kerosene and fuel oil but the amount cannot meet all expenses as KPRL has about 300 employees.

“Kenya Petroleum Refineries Ltd still needs the support of the Kenyan government as current revenue streams cannot sustain the recurrent costs of running the company while in idling mode,” said Mr Wahome.

The refinery’s payroll component requires about Ksh25 million ($277,777) monthly. Other expenses include a private security firm hired to provide guard services to the installation, electricity and water bills. 

The restarting of operations would entail KPRL being given a free hand to import crude oil while continuing to receive government support through fiscal and legal measures in order to attract investment in the refining sector.

In October 2013, Essar announced it would sell its 50 per cent stake in the plant after plans for a $1.5 billion upgrade were abandoned on the advice of consultants, who said it was not economically viable.

“Essar Energy’s decision follows an extensive series of studies by international consultants into the technical, economic and funding elements of an upgrade of the Mombasa refinery,” said the Indian firm.

Kenya’s Cabinet approved the deed of termination on September 11, 2014 to pave the way to ending Essar’s ownership of the refinery, which the Indian company bought for $7.3 million six years ago from BP, Chevron and Royal Dutch Shell. Chevron had a 15.8 per cent shareholding in KPRL while BP and Shell each owned 17.1 per cent.

Essar also paid the Kenyan government $2 million for waiver of its pre-emptive right of the shares that were on sale.

READ: Essar plans $5m exit from Mombasa oil refinery

In Uganda, exploration firms are divided on whether the crude oil export pipeline should be constructed from Hoima through Lokichar to Lamu port or Kampala-Nairobi to Mombasa.

Construction of the crude oil pipeline parallel to the existing refined products pipeline system in Kenya is being debated as the Eldoret to Mombasa route is considered more secure than the northern link.  

KPRL’s employees in a petition to parliament called for a $1.5 billion upgrade to be undertaken to avoid writing off the high value specialised refining plant, machinery and equipment, which have no alternative use.

READ: Kenya Refineries petition MPs over proposed $1.2bn upgrade