KenolKobil overturns expulsion bid

Oil marketer KenolKobil on Friday rushed to court for an injunction to secure its business from regulatory disruption after the ERC revoked its trading licence for non-compliance.

The move came hours after the Energy Regulatory Commission (ERC), wrote to KenolKobil informing the company of that its licence had been revoked upon the expiry of the 14 days notice it had been given to resolve a long running dispute with the Kenya Petroleum Refinery Limited.

The ERC had revoked Kenol’s retail licence on grounds of the company’s failure to comply with the requirement that it must process a specified fraction of its crude imports at the Mombasa-based refinery.

KenolKobil has not processed any oil at the refinery since July 6 when it was thrown out for non-payment of outstanding dues.

But KenolKobil has made a counterclaim against the oil processor citing breach of contract in delays and inability to meet the quality specifications.

In a letter to KenolKobil dated September 3, 2010, the ERC said it had revoked the two operating licences it granted to Kenya Oil Company Limited (Kenol) and Kobil Petroleum Limited and issued KenolKobil with a new licence that restricts the company to wholesale, export and import business but removes bars it from the lucrative retail market.

ERC has issued KenolKobil with a revised set of licences to enable you to continue with other petroleum businesses that are not affected by the legal notice number 197 (which requires the marketer to process one third of its products at the refinery).

KenolKobil closed Friday trading at the Nairobi Stock Exchange at Sh9.79 having dropped from an average of Sh10 a few weeks ago.

Analysts said the options ERC had left the oil marketer with could not effectively cover for the loss of the retail market.

“The wholesale business has thin margins and is riddled with high operational costs,” said Eric Musau, an analyst at African Alliance Investment Bank.

Kenya’s retail market has been the largest contributor to KenolKobil’s revenues that if lost would leave the firm with a massive operating loss.

Despite its recent aggressive expansion with big buyout deals in Ethiopia, Tanzania, Zambia and Rwanda, the Kenya has remained the anchor market that accounts for between 30 to 50 per cent of the company’s total revenues.

Barring KenolKobil from the LPG market would also market a big hit on the company’s investment activities.

KenolKobil has recently invested in an LPG plant in Nairobi and plans to set up another in Mombasa.

Revocation of KenolKobil’s licence – if reinstated -- bears the potential of altering the landscape of the petroleum business that is witnessing consolidation after the exit of several big names in previous years.