The news of the impending closure of the Kenya Petroleum Refinery has sent tongues wagging and certainly for good measure. The Mombasa-based facility is the only one in Eastern Africa — and whose strategic importance therefore spans national boundaries.
The facility — owned 50-50 by India’s Essar Energy and the Kenyan Government — imports crude oil from the Persian Gulf from which it processes liquefied petroleum gas, unleaded premium gasoline, regular petrol, automotive gas oil, industrial diesel, fuel oil and special products like bitumen and grease.
The refinery’s products are sold in the local market and exported to neighbouring countries including Tanzania, Uganda, Burundi, Rwanda, South Sudan & Democratic Republic ofCongo.
Understandably, the shutdown of such a critical installation will send shockwaves across regional economies. However, besides the sentiments of national shareholding in such a facility, the closure is necessarily a good thing and should have come sooner rather than later.
The refinery in its present form stands as a monument of failure and shame. The market has for long been paying the price of corporate inefficiencies and institutional malfeasance.
According to a memo from Energy Regulatory Commission to Permanent Secretaries of Finance and Energy, the economy has spent up to Sh13.05 billion — the amount being the difference between the price of the product sourced from KRPL and product directly imported as refined over the last 28 months.
More specifically, the economy loses up to Sh5.6 billion per year due to the inefficiencies at the refinery. Unfortunately, the inefficiencies at refinery have also affected the quality of its products. On several occasions, the refinery’s products have been said to have more sulphur content than what is specified by the Kenya Bureau of Standards and the neighbouring countries.
Protect consumer
This has meant that oil marketers have often re-exported their products for further refining in a process that piled up on costs of doing business. In 2011 for instance, an audit by Deloitte & Touche showed that the marketers had suffered a cumulative loss of up to Sh7 billion arising from the re-exporting for further refining.
Sadly, the consumer has had to endure frequent price hikes of petroleum products as oil marketers seek to cushion themselves from losses and increasing costs of doing business.
Late last year, oil dealers protested to Government that cost of fuel they buy from the Kenya Petroleum Refineries Ltd (KPRL) is priced Sh10 more than refined fuel imported directly into the country.
Curiously, the overpricing happens even after the State suspended duty rebate on the KPRL products while the same is levied on refined imports. While this duty removal was designed at protecting consumers, they were in fact paying more.
Even in the face of this ineptitude, local oil dealers were required by law to buy up to 50 per cent of the fuel consumed in the country from the KPRL — effectively making the refinery a monopoly of sorts. If no other reason, the closure should serve to bring to an end that continuous exploitation of Kenyans by a non-productive state corporation.
