Cash-strapped Kenya refinery now owed $22m

The Kenya Petroleum Refinery Ltd. Picture: Laban Walloga 

By KENNEDY SENELWA Special Correspondent

In Summary

• The cash-flow problems, caused by oil marketers’ failure to lift products processed by the Kenya Petroleum Refineries Ltd (KPRL), means it may soon be unable to continue operations, hurting Kenya’s position as the hub of the oil trading business in East Africa.
• Debate has been raging in Kenya on whether the nearly moribund refinery should be closed.

Kenya’s crude oil refinery is facing a new financial crisis after debts owed to it by oil marketers rose to over Ksh2 billion ($22.9 million) last month.

The cash-flow problems, caused by oil marketers’ failure to lift products processed by the Kenya Petroleum Refineries Ltd (KPRL), means it may soon be unable to continue operations, hurting Kenya’s position as the hub of the oil trading business in East Africa.

READ: Refinery’s inefficiency, possible closure bad for regional business

At stake are supplies to Uganda, Rwanda, Burundi and the Democratic Republic of Congo, which rely on the refinery for processed petroleum products.

Debate has been raging in Kenya on whether the nearly moribund refinery should be closed, even though the Kenyan government has insisted that it plans to upgrade it at an estimated cost of $450 million (Ksh40 billion).

READ: Kenya’s $1.2bn oil refinery plan shelved

But even as the cash crisis deepens, the fact that the refinery was not mentioned in a joint communiqué issued by the presidents of Kenya, Uganda and Rwanda at an infrastructure summit held in Mombasa on August 28, could be a pointer that the facility may be fast falling off the East African Community infrastructure radar.

Presidents snub refinery

The three presidents’ — Uhuru Kenyatta, Yoweri Museveni and Paul Kagame — instead focused on the planned Uganda refinery as among the key projects in the region that are being looked at in the short term.

The presidents communiqué noted that partner states are to confirm their participation in the development of the Uganda oil refinery by October 14.

The presidents said measures should be taken to ensure that the South Sudan-Lokichar-Hoima crude oil pipeline is integrated into the LAPSSET corridor — from Lamu in Kenya’s coast through South Sudan to Ethiopia — which was commissioned last year. The trio gave the end of December as the deadline.

Suspensions

Documents seen by The EastAfrican on the operational status of the troubled KPRL show that a failure by oil marketers to lift products processed at the facility could see some 18 firms suspended from participating in the open tender system (OTS).

But oil marketers argue that the 50-year-old refinery is using outdated technology that had created operational inefficiencies at the plant. This has in turn made its processed oil products more costly than those imported directly.

Under an arrangement rolled out mid last year, the refinery imports crude oil, refines it and then sells it to the marketers. Previously, oil marketers imported the crude oil then processed it at the refinery for a fee.