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Economy

KPC plans more fuel tanks ahead of new pipeline

Kenya Pipeline Company storage tanks in Nairobi’s Industrial Area. FILE
Kenya Pipeline Company storage tanks in Nairobi’s Industrial Area. FILE 

Kenya Pipeline Company (KPC) plans to more than double the capacity of its Nairobi fuel terminal to cater for the extra petroleum products when a new pipeline from Mombasa becomes operational in 2016.

The oil firm said it will construct four storage tanks with a total capacity of 133.52 million litres—an equivalent of 22 per cent of KPC’s total national capacity of 612.32 million litres.

A bigger facility in Nairobi will help marketers reduce ship demurrage (delay) charges and improve on the Open Tendering System (OTS) by removing restrictions on quantities of products that can be imported.

The Nairobi terminal with a capacity of 100,528 cubic meters is the second largest after the Kipevu Oil Storage Facility (Kosf) that holds 326,333 cubic meters of petroleum products.

“The objective of this project is to provide sufficient capacity for receipt of higher volumes of products expected once the Mombasa-Nairobi pipeline is replaced, enhance operational flexibility, provide window for tank maintenance when they fall due and maintain adequate stocks of petroleum products to cushion the economy from product outages when there are delays in importation or failure of the system,” KPC said in a tender document without giving details on the financing plans.

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“Extra storage capacity is a plus for the industry because marketers currently live hand to mouth. The country survives on the little the existing capacity can handle which is quite dangerous in the event of a disruption,” Mohammed Baraka, a lubricants dealer told Business Daily.

Kenya is under pressure to boost its storage facilities and develop a strategic national petroleum reserve to stabilise supplies. It has no strategic reserves and relies solely on oil marketers’ 21-day oil reserves required under industry regulations.

Persistent fuel shortages caused by inefficiencies at the country’s only refinery in Mombasa have frequently hit the county heavily dependent on the commodity for transport, power generation and agriculture.

This has been worsened by an aging pipeline between Nairobi and Mombasa that is prone to leakages. Much of the refined oil has to be trucked to neighbouring land-locked countries, meaning extra expense for the consumer.

Road transport is slow and unreliable due to the breakdown of trucks and damaged roads. KPC last week called for bids for the financing of construction work on the new 450-km pipeline. The government is seeking up to Sh43 billion in loans to pay for the construction of the fuel pipeline.

Petroleum dealers said the expansion of KPC’s terminal in Nairobi would help address the congestion at Kipevu.

“The Kipevu facility is stretched and holding more products in the hinterland and closer to the market would boost operations,” Mr Baraka said.

Extra storage facilities are considered critical for oil marketers’ economies in the region because of the thin margins realised from sales. In fragmented markets such as east Africa’s where margins are small, bulk supplies hold the key to profitability.

Currently, the Kosf is the primary facility of receiving imported refined petroleum products, both distillates and spirits, and has a storage capacity of 326 million litres while its operational capacity (effective) is 269 million litres.

The Energy ministry says the Kosf is not adequate for regional demand of petroleum products estimated at 450 million litres per month.

Marketers and speculators have been battling for space at Kosf resulting in the Triton scandal where the Yagnesh Devani firm hogged most space only to evacuate fuel without the paid consignees’ consent.

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