KPRL postpones change to merchant refinery

By Macharia Kamau

The Kenya Petroleum Refinery Limited (KPRL) has postponed the proposed date for commencing operations as a merchant refinery

The Refinery further wants Government protection once the changes take effect to ensure it remains profitable.

The Mombasa-based refinery had set beginning of January this year as the date it would change cap and start operations as a merchant refinery – which would have seen it start buying, processing and selling refined fuel to local marketers.

This is as opposed to the current state where it processes crude oil imported by oil marketing firms at a fee.

The date has, however, been changed and KPRL expects to start operating as a merchant refinery April 1.

The change in status of KPRL is expected to be among the first in its planned modernisation plans.

And in a letter to the Energy Regulatory Commission, the refinery has proposed a set of protectionist measures that it said should be instituted to ensure it remains profitable.

These include a fee to be included in the price of refined fuel set at 6.88 per cent of import parity prices (IPP) – which is equal to landed cost of fuel if it were imported.

It lso wants local oil marketing companies to be compelled to exhaust all products refined locally before they can resort to importing refined petroleum products.

Selection of crude

The refinery also wants a free hand in the selection of types of crude that it will import and process at the plant as well as procuring it from what it will deem as the most competitive oil producing countries. These, it says, will ensure its business will remain profitable.

These are, however, just proposals subject to scrutiny by both the regulator and oil marketing companies.

The ministry of Energy has already asked oil marketers to forward their views on the proposals.

"It is imperative that KPRL is given the leeway to select crude oil to be processed. This will enable the company to procure crude that is most economical to process," said Bimal Mukhurjee, KPRL chief executive in the letter dated December 22.

"KPRL also proposes that the legal notices giving effect to the merchant refining exclude fuel oils from products that can be imported without participating in off take of products processed at the refinery. This will guarantee that fuel produced by KPRL is off taken by oil marketing companies before they can be allowed to import."

The raft of proposals, especially request to have its revenues protected by appending a 6.88 per cent fee on refined products has, however, been criticised by consumer lobby Consumer Federation of Kenya (Cofek), which it said would result in unnecessary rise in fuel prices and asked the Government to decline the KPRL proposals.

"This can only mean that the consumer will be paying this additional subsidy which translates to $83 million (Sh7.2 billion) per year. The consumer will also suffer unspecified costs in terms of the low quality fuels produced by this refinery whose outdated technology is a matter in the public domain" said Stephen Mutoro secretary general Cofek.