Kenol faces closure over refinery row

The energy sector regulator on Thursday warned of a possible expulsion of oil marketer KenolKobil from the Kenyan market, raising the prospect of supply disruptions and a steep rise in prices of petroleum products.

KenolKobil, Kenya’s second largest petroleum marketer by marketshare, is facing action from the Energy Regulatory Commission (ERC) for breach of the law that requires all oil marketers to refine at least 40 per cent of their products at the Kenya Petroleum Refinery Limited (KPRL).

The company was thrown out of the Mombasa-based refinery in June following a dispute over unpaid refinery fees that it has moved to court to contest. ERC has given the firm two weeks to meet the requirements of its operating licence or have it withdrawn.

The refineries stopped accepting crude from KenolKobil for processing on July 12 after an arbitration court found the oil marketer had not paid Sh456 million in processing fees to KPRL following a dispute over revised rates.

KenolKobil which is challenging the arbitration award is in turn demanding in excess of Sh4 billion in revenue losses it claims arose from KPRL’s inefficiency.

“You have 14 days from the date of service of this letter to show cause why the above licence should not be revoked,” ERC said in a August 17 letter to KenolKobil.

The action is expected to add pressure on the firm’s share price at the Nairobi Stock Exchange (NSE) where it has been trading sluggishly in the past three months.

Stock brokers said the Sh456 million dispute with the refinery has seen many investors give KenolKobil counter at the NSE a wide berth, leaving the share price on a free fall.

The marketer is also facing multi-billion legal challenges from Kenya Ports Authority, the Kenya Revenue Authority and Kenya Pipeline Company.

Investors fear that the huge claims could wipe out KenolKobil’s profits or push it to the edge of bankruptcy and have been waiting for signals that they are being resolved.

The marketer’s share has oscillated between Sh10.70 and Sh9.90 in the past three months, helped by a thin float at the NSE.

“The company’s financials are looking good but the disputes have been a turn off to investors,” said Erick Musau, a financial analyst at African Alliance.

A possible exit of KenolKobil from the petroleum retail market is raising concerns that consumers may soon have to grapple with an acute supply disruption given the large market share it controls and the heavy investments its rivals would require to plug the gap.

Kenol’s market share stood at 19.6 per cent in the first half of this year behind market leader Total with a 31 per cent stake, according to data from the industry lobby — Petroleum Institute of East Africa (PIEA).