East Africa’s sole oil refinery, owned and operated by Kenya Petroleum Refinery Limited (KPRL), in which government is a joint shareholder, could be poised for closure after the Kenya government confirmed it as no longer viable.
After several failed attempts to sustain the archaic facility, the authorities in Kenya now contend the refinery is a burden to the exchequer, the cause of high fuel prices in the East African nation and an impediment to the efficient operation of the petroleum industry.
Consequently, the Kenya government, through the Energy Regulatory Commis- sion (ERC), has put forward a strong case for the closure of the facility. After closure, it will be used as an import terminal.
KPRL is owned by the Kenya govern- ment and India’s Essar Oil & Gas on a 50:50 basis. It is still unclear whether Essar will approve the decision to close the facility.
“While the motive to protect KPRL was noble, the effect of this policy has been a massive loss to the economy, resulting in higher consumer prices,” says the ERC in a report prepared for the two shareholders.
ERC contends that, over the past 28 months, the economy has lost $150.5- million because of protectionist measures imposed by government that require oil market players to buy refined products from the refinery.
Over the same period, the country has incurred losses to the tune of $17.3-million in demurrage payments because of ineffi- ciencies at the refinery causing delays in discharging imported crude.
The decision to shut down the refinery comes after several attempts by the Kenya government to keep the facility afloat.
In July last year, KPRL was transformed from a tolling to a merchant refinery in efforts to make it financially independent and profitable. As a tolling refinery, KPRL used to process crude imported by oil marketing companies but, as a merchant facility, it sources, buys, imports and processes its own crude, selling its product to marketing companies.
Over the years, inefficiencies at the refinery have been cited as the major cause of the fuel crisis in the East African country, which spends $2.6-billion on petroleum imports a year.
Kenya is also building a modern refinery as part of the $25-billion Lamu Port–Southern Sudan–Ethiopia Transport Corridor project.