The Kenya Pipeline Company (KPC) is planning to build another petroleum products pipeline between Mombasa and Nairobi barely four years after the commissioning of the line that currently moves fuel between the two cities.
The company said on Wednesday, September 7, growing demand for petroleum products in Kenya and the region is causing a strain on the pipeline that started operations in 2018 and necessitating more investments including the construction of another line and increasing capacity at its inland depots.
That plan is among the reasons the company has asked for an increase in the tariff that oil marketing companies pay to use its pipelines and depots to move and store petroleum products.
KPC has made an application to the Energy and Petroleum Regulatory Authority (Epra) for a 13 per cent increase on its transport and storage tariff to Sh5.22 per cubic metre per kilometre over the 2022-23 financial year from the current Sh4.61.
The tariff will increase to Sh5.53 per cubic metre per kilometre in the 2023-24 financial year but ease slightly during the 2024-25 financial year to Sh5.50 when the company expects to have completed building the pipeline.
KPC Chief Planning Officer Elizabeth Akinyi said the company had applied for a tariff review in January this year but later amended it in July to cater for the planned investments in the new pipeline.
"In our initial tariff application, we had not factored in the capital for enhancement for the Mombasa-Nairobi line where we plan to install a new line," she told industry stakeholders at a public participation forum where Epra is seeking views on the tariff application.
The money accruing from the higher tariff is also expected to enable KPC to increase its storage capacity at its depots in the Western Kenya region.
Ms Akinyi said KPC's depots at Eldoret and Kisumu have been having "operational challenges" due to storage constraints.
If Epra approves the tariff application as proposed, it will have the effect of increasing the retail cost of super petrol by 54 cents in Nairobi, 42 cents per litre in Nakuru and 29 cents per litre Eldoret and Kisumu.
Motorists in Nairobi pay Sh2.07 as the Mombasa-Nairobi pipeline transport cost.
KPC said other than growing demand, there is also an increase in petroleum product flow rate from ships importing fuel to Kenya following the commissioning of the second Kipevu Oil Terminal (KOT) in August.
Previously, the old KOT could only allow one vessel to discharge but the new one allows three ships to discharge at the same time.
This could get to a point where the capacity of the current KPC facilities might not be able to receive and push inland products at a faster rate and could slow down discharge by ships.
Plans to build another pipeline come shortly after the commissioning of the new Mombasa-Nairobi pipeline.
The recently built Mombasa-Nairobi pipeline (Line 5) cost Sh48 billion and started operations in 2018. It currently pumps about a million litres of fuel per hour but has the capacity to increase this to 1.8 million litres per hour.
This would, however, require investing in additional booster pumps along the pipeline.
Following the commissioning of Line 5, KPC continued using the old line to complement the new one until last year.
There have been concerns among industry stakeholders that the new line is not adequate to cater for the growing demand in both Kenya and the region.
Epra Director General Daniel Kiptoo said the regulator would consider both the reasons given by KPC in applying for the tariff hike as well as the views presented by stakeholders including consumers.
He said Epra has a dual mandate of consumer protection but also considers the investments that different players have put in place to ensure the delivery of petroleum products
"It is our role to ensure high quality of infrastructure while at the same time keeping the products within the reach of the ordinary citizen," he said.
"We will ensure that KPC gets enough to build and maintain infrastructure as well as ensure that public gets products at a fair rate."
KPC believes that the rates it has proposed are competitive.
It compared the Sh5.22 per cubic metre per kilometre is proposing to charge with the existing rates for road transport at Sh6.7 per cubic metre per kilometre, noting that its tariff is 40 per cent cheaper.
For oil dealers from Uganda that would use the pipeline from Mombasa to and lift the products at either Kisumu or Eldoret, their landed cost in Kampala would be $74 per litre of petrol, according to KPC.
This is in comparison to a landed cost of at least $90 per litre if they were to use road transport from Mombasa to Kampala.