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Kenya bleeds millions as Uganda goes slow on joint oil jetty plan

FINANCIAL STANDARD
By Macharia Kamau | February 23rd 2021
The Kisumu Oil Jetty. Failure by East African neighbour to build reciprocal facilities on Lake Victoria reflected in KPC’s 2019 books, with Auditor General warning of further hit for taxpayers in subsequent years.
[Phillip Orwa, Standard]

Kenya Pipeline Company’s (KPC) Sh2.06 billion Kisumu oil jetty depreciated by Sh158 million in 2019. This was a result of Uganda’s failure to put up a reciprocal facility on Lake Victoria.

The depreciation of the jetty has been captured in the State corporation’s annual report to June 2019. Since then, there has been little change, with the facility remaining underutilised.

Auditor General Nancy Gathungu has now raised concerns about the continued disuse of the facility, noting that the taxpayer is not getting value for money.

Construction works on the jetty were executed from May 2017 to March 2018 when the jetty was completed and handed over to the company by the contractor. The assets were thereafter capitalised in 2017-18, and as of June 2019 had been depreciated by Sh150.04 million,” said the Auditor General in her report accompanying KPC’s annual report, which was tabled in Parliament recently.

“The jetty has remained unused due to the lack of infrastructure for receipt and storage of the products in Uganda …. the jetty was constructed under the Northern Corridor Integration Projects portfolio of the East African Community with a view to improving the distribution of refined petroleum products in Uganda and other neighbouring countries.”

No value

The Auditor General noted that KPC needs to further assess the value of the facility.

“Although management has indicated that some progress has been made in construction of one of the two planned similar jetties in Uganda, there is no certainty when these will be completed and operationalised,” said Gathungu in the report.

“Therefore, the country is not deriving any value form the use of the jetty. Further delay in operationalisation of the project may require the Kisumu jetty assets to be assessed for impairment of their book values.”

The jetty was dubbed a game-changer in the transportation of petroleum products in the region and was expected to help Kenya easily woo back companies importing petroleum products to the region from Tanzania.

It was expected that refined petroleum products would be moved through the pipeline between Mombasa and Kisumu, and thereafter to Uganda, Rwanda and the Democratic Republic of Congo with ease and cost-effectively.

The Kenyan petroleum transport system was once the preferred route for regional importers, but it has over time lost its allure partly due to how long it takes to clear cargo at the Port of Mombasa, and corruption at the port and in other government institutions.

“The jetty has the potential to turn Kisumu into a focal point for oil and gas commerce in the region, thereby transforming it into one of the busiest inland ports in Africa. By extension, this will also raise Kenya’s profile as a strong partner in regional and intra-Africa trade,” said KPC after the completion and handover of the jetty, underscoring the expectations the company had in the facility.

Importers to countries in the region, including those of petroleum products, have over time ditched Mombasa and the Northern Corridor for the port of Dar es Salaam, which is part of the Central Transportation Corridor.

In addition to the jetty, other measures to reclaim the KPC’s market share are setting up a liaison office in Uganda, having a friendly pipeline tariff for companies importing through Kenya, and assigning special storage space for Uganda and Rwanda.

KPC had in July last year told the Senate Committee on Energy that one of the Ugandan jetties was expected to be ready by November last year, after which transportation of petroleum products on Lake Victoria would start in earnest.

Mahathi Infra Uganda, the consortium of private sector players who have been building one of the neighbouring country’s jetties, recently reported that the project is nearing completion and is expected to be ready for use by March this year.

The firms said the Covid-19 pandemic had complicated work, resulting in unforeseen delays.

Over the year to June 2019, KPC reported a net profit of Sh2.05 billion, a 76 per cent decline from Sh8.57 billion it had made in 2018.

Major drop

The major drop was on account of provisioning for some Sh4.3 billion owed by an oil marketing company that has disputed KPC’s claim and lodged a lawsuit.

Several oil marketing companies have also contested some Sh1.8 billion in penalties levied for delays in picking their products from KPC facilities.

The company had introduced the penalty in a bid to reduce the time firms take to collect petroleum products.

The marketers, however, protested this, and it appears unlikely that KPC will be able to collect the fine.

But the company’s revenues increased to Sh31.5 billion in the year to June, a 14 per cent growth from Sh27.7 billion previously.

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