TAKE-OVER

KPC seeks to renew refinery lease deal, eyeing acquisition

KPC signed a three-year lease with KPRL in March 2017 to facilitate continuity of business after the facility faced closure.

In Summary
  • KPC chairman John Ngumi has said the company expects to present papers on the acquisition and business plan within this quarter.
  • The three year lease signed in March 2017 expires in March 2020.
Kenya Petroleum Refinery plant in Mombasa/FILE
Kenya Petroleum Refinery plant in Mombasa/FILE

Kenya Pipeline Company (KPC) is pushing for a lease renewal of the Kenya Petroleum Refinery Limited (KPRL) Mombasa facility, and plans future full acquisition.

However, it is emerging that the KPRL board is reluctant to offload the facility after realising it is still profitable.

KPC signed a three-year lease with KPRL in March 2017 to keep the facility running after the exit of Indian investor Essar Energy in 2014. Oil marketers had also ditched the refinery protesting high charges.

 

KPC management has confirmed it is seeking a lease extension beyond the March 2019 expiry date.

“KPC is seeking an extension of the lease to continue upgrading and refurbishing the facility for optimisation of existing infrastructure and future strategic investment,” the company’s acting managing director Hudson Andambi said.

The business case for the refinery's acquisition has been presented to KPC's management and the board's finance committee and is awaiting progression to the full board.

Speaking to the Star yesterday, KPC chairman John Ngumi said the board is in the middle of putting together a proposal to government on the acquisition of the facility.

“We expect to present papers on the acquisition and business plan within this quarter. We plan to make it part of KPC. In the meantime we remain focused in supporting the early oil project by improving a section of the refinery as a storage facility,” Ngumi said on telephone.

Trouble at the over 50-year-old plant started in 2009 when oil marketers—Shell Petroleum Company Limited, Chevron Global Energy Inc and BP Africa Limited complained of high operational costs at the facility, which made locally refined products more expensive.

They opted to directly import refined petroleum products.

 

In July 2009, Essar acquired a 50 per cent stake at $7 million(Sh726.2 million) from the three oil marketers with the government retaining its 50 per cent stake.

The Indian firm later sold its stake at $5 million(Sh518.7 million) in June 2016, with it reverting wholly to the government.

The refinery later became a liability for taxpayers who had  to shoulder its financial burden until KPC takeover.

“We have invested a lot in modifying the facility to support the Early Oil Pilot Scheme,” Ngumi said yesterday.

With a $3 million(Sh311.2 million) investment in rehabilitating and modernising the storage tanks at the refinery, KPC is keen to hold on to the facility which has helped to streamline transportation of fuel and enabled the country to boost its strategic petroleum reserves from 12 days to 30 days.

KPC has also spent $3.8 million(Sh394.2 million) over the past two years in paying interest on KPRL bank loans.

The facility 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. KPC controls 144 million litres at the Changamwe(Mombasa) facility.

With the early oil project and prospects of turning around KPRL into profitability, the board is adamant to let go of it, the Star has established.

KPC is however determined to take over the facility to boost its storage capacity , currently totaling 858 million litres,  and grow its revenues which grew to Sh31.4 billion in 2018/19 from Sh27.7 billion the previous year.

Total throughput increased to 7.4 billion litres during the period, from 6.5 billion litres in 2017/18.