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Kenya Petroleum Refinery Limited to lose out on financial deal

By Macharia Kamau | June 11th 2013

By Macharia Kamau

The Kenya Petroleum Refinery Limited and oil marketing company, KenolKobil are at the centre of a Sh1 billion controversy that entails an irregular release of petroleum products.

According to correspondence between the two companies obtained by The Standard, KPRL delivered to KenolKobil oil products valued at Sh1.17 billion without a valid letter of credit and which the firm has not paid for to date. This has put the Kenya Refinery in an awkward financial position and threatens to see it lose out on a financial deal it has with the Standard Chartered Bank.

The bank has a $350 million financing agreement with the Refinery, which is expected to play part in kick starting KPRL’s modernisation programme. Standard Chartered is however threatening to back out of the arrangement and demand an immediate and upfront payment of the $350 million advanced to KPRL unless KenolKobil offsets its debt.

“Such failure to comply is not capable of remedy and as a result, an event of default has occurred under the Facility Agreement. As a result of this, we expressly reserve all our rights (as per the agreement)... and notify you that we may declare all amounts outstanding under the finance document payable on demand,” said Richard Etemesi, chief executive Standard Chartered Kenya, in a letter dated May 29 to the Ministry of Energy on behalf of Standard Chartered UK, which entered into agreement with KPRL.

“We may also require full cash cover to be provided in respect of each letter of credit that is currently outstanding; and/or require that the outstanding loans are repaid in whole or in part,” it added.

The controversy has also seen KenolKobil banned from participating in the Open Tender System (OTS), a fuel importation facility supervised by the Ministry of Energy where oil firms bid to import a portion of the country’s fuel supply on behalf of other oil marketing companies.

The firm has also been banned by the Energy Ministry, both as a buyer or a seller, meaning it cannot bid to import products on behalf of the industry nor buy products for its operations in the region.

It also means KenolKobil will have to buy products in the wholesale market, which is slightly higher and will result in the company making smaller margins.

The development adds to the woes of the firm that is trying to recover from Sh6 billion loss posted last year.

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