State appoints PwC to clean up Refinery’s books before acquisition

Kenya Petroleum Refineries plant. [PHOTO: FILE/STANDARD]

The transfer of Kenya Petroleum Refineries to Kenya Pipeline is facing delays, the Government has admitted. Energy and Petroleum Cabinet Secretary Charles Keter said the Government is undertaking due diligence to clean the books of KPRL before the transfer.

He said KPC has commissioned an audit to help unravel the complex web of transactions the refinery has undertaken over the years and establish its genuine debtors and creditors. The firm has appointed PricewaterhouseCoopers (PWC) as transaction advisors to carry out an audit of KPRL’s assets to determine the value of the company before it is taken over.

Mr Keter fears transferring the facility to KPC before cleaning up KPRL’s balance sheet could expose the State-owned pipeline company to ‘fraudulent debtors’ that might come demanding payment for non-existent services delivered to KPRL.

“KPRL has a lot of liabilities and also assets and we want to ascertain the extent of what it owns as well what it owes different institutions before it can be taken over by KPC,” said Keter told Weekend Business.

Disgruntlement

“PwC is working on the details to establish KPRL’s assets and liabilities before KPC can proceed with the takeover. Otherwise we might see a situation where everybody will come after KPC claiming that they were owed by KPRL and demand that such debts be paid by KPC.”

A report by the business consultancy firm is expected to inform the way forward in handing over the refinery to the KPC. The Ministry had last year cleared the takeover and instructed the boards of KPC and KPRL to initiate the process of the transferring the assets to KPC. The process has, however, stalled owing to a disgruntlement within the KPRL board.

He added that the findings by PwC will be discussed between the Energy Ministry and the National Treasury and then presented to the Cabinet for approval. Previously the KPRL board had argued that the Ministry of Energy did not have the standing to disband the board and only Treasury, which is legally the owner of KPRL, could do that.

The Government assumed 100 per cent ownership of the refinery after buying India’s Essar Energy 50 per cent stake for Sh500 million. “The refinery is 100 per cent owned by the Government and this being a transfer from one Government agency to another, then it is fairly straightforward,” Keter said of the situation where KPRL board might try to oppose the transfer.

KPRL quit refining crude oil imported into the country in 2013 following an industry outcry that it was too costly due to outdated equipment at the plant that served to push up the price of petroleum products in the country. Kenya has since relied on importing refined products with some of the tanks at the refinery serving as storage for the imports.

Before the takeover process is concluded, KPC will assume the management of the refinery by leasing out its facilities to store imported refined petroleum products as well as crude that will be moved by road from Turkana to Mombasa. In a statement early this week, the firm said it would be absorbing KPRL’s employees under the lease agreement. This would mean that the pipeline company has taken over the refinery and only awaits official go ahead from the Cabinet.

The three year lease agreement will enable KPC shore up its strategic petroleum reserves from the current low of 12 days to 30 days. The firm said plans are underway to increase the reserves to three months. “KPRL has both storage facilities and grounds that will be used to increase the country’s ullage which will in effect create enough capacity for berthing vessels to discharge fuel into KPC’s system,” said Keter.

“Over time, this will see Kenya save billions of shillings incurred in demurrage charges every year for fuel vessels docking at the port of Mombasa, a factor that could significantly reduce the cost of fuel. In addition to this, the Government is looking to invest in LPG facilities on KPRL’s grounds with over 309 acres of land available at its Changamwe facility.”

Currently, the country lacks a common user import terminal under the control of the Government for LPG since there are no State-controlled storage facilities for LPG. KPRL has 45 tanks with a total storage capacity of 484 million litres of which 254 million litres is reserved for refined products while the remaining 233 million litres is reserved for crude oil.

KPC has seven storage depots with a total capacity of 612 million litres and is currently constructing four additional tanks at its Nairobi Terminal with a combined capacity of 133.5 million litres.