A company associated with former prime minister Raila Odinga and his extended family plans to build a Sh300 million fuel depot in Nairobi’s Embakasi area as cheap imports eat into its manufacturing business.
If approved, the depot would see the Odingas expand their interest in the midstream petroleum market beyond importation through Pan African Petroleum Ltd.
East Africa Spectre, a gas cylinder manufacturer owned by Mr Odinga’s family, has applied to the environment regulator for approval to build the facility on a five-acre plot in Embakasi held by Newpoint Limited, a sister company.
“Once we are through with the National Environment Management Authority (Nema) process, we will apply to the Energy Regulatory Commission (ERC) for a permit to construct the facility,” Hudson Chitala, the general manager at East Africa Spectre, told the Business Daily on telephone.
The 25,000-cubic-meter depot, about a quarter the size of Kenya Pipeline Company’s Nairobi facility, will sit alongside a liquefied petroleum gas (LPG) plant.
Ground breaking for the facility is scheduled for January 2015 and will see East African Spectre diversify from purely manufacturing and refurbishing gas cylinders at its factory located behind Panari Hotel along Mombasa Road.
The planned oil depot will have the capacity to hold ten million litres each of diesel and petrol and another five million litres of kerosene.
It will have an LPG storage plant that can hold 500 metric tonnes of gas and several filling stations for tankers serving the company’s customers.
“We anticipate that the regulatory processes will take us about two months after which we will have the groundbreaking ceremony next January,” Chitala said. He added that EA Spectre expects to have local financing in place by then.
Chitala said that the oil and gas project was a strategic move following a drop in the company’s manufacturing business brought about by the importation of cheap gas cylinders.
He revealed that the company was currently “depending almost entirely” on contracts to refurbish gas cylinders (they require repair every eight years) as orders for new cylinders continued to drop.
They will enter the private oil storage market two years after logistics firm VTTI’s launch of its 110,000-cubic meter bulk storage facility at Kipevu (acquired as an incomplete asset from Triton).
Petrocity Energy, based in Konza, has also been building a storage facility to serve Nairobi with the first phase providing 32,000-cubic meters of fuel capacity. When completed in “early 2015”, the facility will hold up to 152,000-cubic meters of fuel.
Kenya Pipeline Company’s depots, which are shared by players in the industry according to market share, have a capacity of more than 600,000 cubic meters. The firm is increasing its capacity in Nairobi.
EA Spectre can also expect competition on LPG gas storage with Hunkar Trading, Addax Kenya, Hass Petroleum, the National Oil Corporation of Kenya, Total, KenolKobil and others investing in new or expanded plants since last year.
Oil marketers have been complaining of illegal gas operators hurting their businesses and posing a safety threat to consumers with substandard products.
“Legitimate business people must be protected in order to give confidence for investment in LPG facilities,” said Petroleum Institute of East Africa (PIEA) general manager Wanjiku Manyara.
“LPG growth and, indeed, economies of scale that can lead to lower prices are driven by effective and efficient supply chain at scale as well as adequate supply of cylinders in good condition.”
East Africa Spectre is just one of many companies associated with Mr Odinga. One of the former premier’s well-known family businesses is Spectre International, a Kisumu-based manufacturer of ethanol, methylated spirits and yeast. It, too, has had to diversify for survival.
In July last year, Spectre International announced it would be making a debut in the fertilizer business. And three years ago, it ventured into production of carbon dioxide gas, a preservative vital in the manufacture of beer, wine and fizzy drinks like soda.
This push to expand its business has been driven by the reduced availability of molasses – used in ethanol manufacture – especially after Mumias Sugar Company also began producing the alcohol fuel.
The diversification drive now seems to have caught up with East Africa Spectre, leading them to earmark oil and gas as the next money churner.
“Nairobi City has one of the highest urban population densities in the country of up to 3,079 persons per square kilometre, bringing with it high demand for energy,” EA Spectre notes in regulatory filings seen by the Business Daily.
“The principal market is Nairobi with significant consumption in other urban areas of Mombasa (Coast region) and Western Kenya region. Such needs can be catered for by establishment of an LPG plant.”