Ten fuel-marketing companies have refused to adhere to a rule that they purchase 40% of their fuel needs from the 50-year-old refinery, the Oil Industry Supply Co-ordination Committee said in a letter sent to Kenya Petroleum Refineries Limited (KPRL).
The April 19 letter from the committee, which represents companies including KenolKobil, Total Kenya and Nairobi-based Vivo Energy, the three biggest fuel suppliers by market share, was forwarded to Bloomberg by two of its members.
From July 1, "fuel supply into Kenya is at risk and perhaps supply costs will spike due to an increase in demurrage costs as all players import their product needs", MD Polycarp Igathe said in an interview. Offloading at the port in Mombasa might be delayed as multiple companies imported instead of only KPRL.
Kenyan fuel retailers want KPRL to stop importing crude and selling them the refined output because equipment at the facility, in desperate need of an upgrade. Inefficiencies at the refinery mean it costs petroleum companies 10 shillings (R1.15 ) per litre more than importing it themselves, according to the committee.
"If you don’t pick from KPRL, you make more profit than the competitor because KPRL supply is expensive," Mr Igathe said. "It is unfair for KPRL-compliant oil marketers to make losses for obeying the law."
Vivo Kenya is a licensee of The Hague-based Royal Dutch Shell, according to its website.
Last month, Kenya’s energy ministry threatened to close the refinery unless it detailed a plan to finance an upgrade. Workers at the plant held a strike last week over concerns that they may lose their jobs.
Losses at the facility, which is managed by Essar Energy of India in a joint venture with the government, have cost the state 13.1-billion shillings over the past 28 months, according to the energy ministry.
"In response to that letter, the oil-marketing companies, the Ministry of Energy and KPRL have agreed that the companies continue uplifting whatever stock we have bought up to June," MD Brij Mohan Bansal said by phone. After the stock of crude oil purchased by the refinery is finished "the government has to think of what will be done".
The refinery has a processing capacity of about 80,000 barrels per day, according to data.
KPRL said in April it was considering raising $1bn of debt and equity for a planned upgrade of the facility. Renovations at the refinery would increase processing capacity to 4-million metric tonnes by 2019 from 1.6-million tonnes now and improve efficiency. The upgrade has been delayed by at least three years. In April 2011, the government said it expected work would be completed by 2015-16.
Under the merchant model, the refinery began sourcing and processing its own fuel and selling it to oil marketers. Previously, under the toll system, it refined products bought from the fuel distributors and sold it back to them for a fee. Imports of refined petroleum rose to 2.8-million metric tonnes last year compared with 2.24-million tonnes in 2011 as imports of crude dropped while the refinery was being converted to a merchant facility, according to the Kenya National Bureau of Statistics’ survey for this year.
The Energy Regulatory Commission reviews retail prices every month and set pump prices for petrol at 108.18 shillings per litre on Friday. In his budget presentation last Thursday, cabinet secretary for the national treasury Henry Rotich said funds had been set aside to develop the new port of Lamu under the Lamu Southern Sudan-Ethiopia Transport Corridor.
Priority will also be given to the three-year development of a two-track standard gauge railway line from the port city of Mombasa to lakeside city of Kisumu, a distance of 860km.
Mr Rotich said the new railway line would improve turn-round time for cargo transport and significantly reduce the cost of freight from Mombasa to Kisumu, by as much as 79% for the cost of transporting a 40-foot container. Roads development will take the bulk of the development budget, sharing nearly equal amounts for investments in renewable electricity generation projects as Kenya seeks to diversity from the mainly hydro-generation sources.
"This is intended to facilitate the private sector to create jobs consistent with the commitment of the new administration to improve the business environment," Mr Rotich said. Part of the money will also be used for construction of the first three berths and associated infrastructure of the Lamu Corridor.
Bloomberg
