Refinery feels the heat as marketers opt for oil imports
KPRL plant: ERC has accused the refinery’s managers of non-performance. Photo/File
What you need to know:
Six months into the new crude oil importing regime, off-take of products has dropped threefold with the facility accusing the pipeline and the oil marketers of “sabotaging’’ its operations.
The stand-off is hurting its operations, leaving it in a cash crunch since financiers and importers depend on actual sales.
KPRL has formally protested to the Energy Regulatory Commission (ERC) and the Energy ministry.
Oil marketers are boycotting products from the Mombasa refinery in favour of direct imports owing to higher costs, it has emerged.
Between November and December, for instance, the cost of super petrol was higher by more than $205 a tonne compared to the international price while that of diesel was higher by $182 a tonne.
Because the refinery is supplied through the Open Tender System (OTS), it is supposed to be cheaper.
But the high cost of the Kenya Petroleum Refineries Ltd products months after it switched into a merchant arrangement has raised eyebrows.
Six months into the new crude oil importing regime, off-take of products has dropped threefold with the facility accusing the pipeline and the oil marketers of “sabotaging’’ its operations.
The stand-off is hurting its operations, leaving it in a cash crunch since financiers and importers depend on actual sales.
KPRL has formally protested to the Energy Regulatory Commission (ERC) and the Energy ministry.
“Total off-take from the refinery in December dropped drastically from the required rate of 125,000 tonnes to 60,000 tonnes per month, leading to severe throughput loss.
“Under tolling mode, product evacuation through the pipeline was of the order of 50-55,000 tonnes per month and constituted 35 per cent to 40 per cent of total refinery production.
"In the short period under merchant mode, evacuation through KPC has reduced to around 17,000 tonnes per month only,” said KPRL chief executive Brij Bansal in a letter seen by the Business Daily addressed to Energy PS and the ERC.
But ERC, which in a recent audit blamed the refinery’s managers for non-performance, has said: “It is a management issue”.
“KPRL needs to do more to co ordinate with the marketers on off-take of products. This is a legal requirement and I do not think that marketers are refusing to lift products,” said Mr Kaburu Mwirichia, the ERC director-general.
“The merchant arrangement is a good system: We have resolved most of the issues and it is up to KPRL to smoothen the logistics,” he added.
KPRL processes about 133,000 tonnes of crude oil monthly but December saw it process just 87,500 tonnes. This has forced it into an on-and-off operation since August last year.
In the new model, KPRL buys own crude which it processes and sells, moving away from the regime of marketers owning the crude.
The off-take agreement requires marketers to have a commitment— standby letter of credit (SBLC) — equivalent to product off-take for a month to facilitate timely evacuation.
But KPRL says marketers are not depositing adequate money to streamline the dispatches, resulting in a clogged up system and losses.
“Major marketing companies have opted to open SBLC for a fixed amount of $5 million to $15 million,” says Mr Bansal.
However, the dealers denied the claims. “We are all lifting as majors. We have also satisfied all the requirements,” said Rida Elamir, managing director for OiLibya and chairman of the Petroleum Institute for East Africa (PIEA), the industry lobby for major oil firms.
KenolKobil also says it was lifting its entitlement.
The monthly fuel price review is Monday and ERC has been factoring in Sh140 million in the pump prices as compensation for demurrage costs slapped by shippers on delay.
