Kenya refinery denies holding fuel

July 22, 2010

, NAIROBI, Kenya, Jul 22 – The standoff between the Kenya Petroleum Refineries Limited and KenolKobil seems far from over after KPRL denied withholding the oil marketer refined products.

The KPRL General Manager John Mruttu said although the processing agreement they had with KenolKobil ended on July 13, the refinery had continued to release products held in its tanks that were processed before the contract was terminated.

“KPRL strongly refutes the statement by KenolKobil that it is withholding its products. The products are being released to KenolKobil’s local depots in Mombasa and in batches into the KPC (Kenya Pipeline Company) pipeline system in line with common practice. This has been confirmed to KenolKobil in writing,” said the GM in a statement.

In a letter to the Chief Executive Officers of the Capital Markets Authority and the Nairobi Stock Exchange, KenolKobil claimed that senior officials from the Energy Ministry had instructed KPRL to release its products with ‘immediate effect’.

“We commend the government for stepping in to ensure sanity prevails in this matter,” said Chairman and Group Managing Director Jacob Segman.

“Notwithstanding KPRL’s interpretation of the status of our processing agreement, it was still obligated to deliver these products and their action to the contrary was illegal,” he added.

In its defence however, KPRL said it processes crude oil for more than 35 oil marketing companies under the terms of identical processing agreements that are required by law to refine 1.6 million tonnes of crude per annum in proportion to their market share.

“The processing agreement provides that fees payable can be varied by KPRL after giving a six months’ notice to the marketing companies. The agreement can also be terminated on giving a twelve-month notice,” Mr Mruttu said.

On the disputed issue of adjusting the processing fees, the GM went on to explain that since deregulation, these rates have been reviewed thrice; in 1999, 2006 and 2008 reflecting a 42 percent increase in 15 years.

Mr Mruttu questioned why it was only KenolKobil that has refused to pay the revised fees while all other marketers including small indigenous companies have complied.

The oil firm has continued to pay the fees as at 1999 rates which KPRL said has resulted in arrears of nearly Sh600 million as at end of June 2010.

“The arrears keep increasing at the rate of approximately Sh20 million per month. As a result KPRL incurs losses on every tonne of crude oil it processes on KenolKobil’s account and cannot therefore afford to process crude oil at the rate that KenolKobil wants to pay,” complained the manager.

He further asked KenolKobil to explain why despite paying lower fees, the oil company was still selling products at the same price as the other marketers.

“Bearing in mind that most of the products are sourced through the open tender system hence having common costs, KenolKobil recovers the increased processing fee component from its customers but does not pay the same to KPRL thus giving them an unfair advantage and creates an uneven playing field compared to other marketers,” Mr Mruttu added.

The protracted dispute that the two parties have has compromised KPRL’s income which is obtained from the fees charged in line with the processing agreement.

KPRL said KenolKobil’s insistent on going to court every time it’s asked to pay the charges was also impacting negatively on its operation prompting the decision to terminate the contract.

On its part, the marketer has made known its intention to file a claim for damages and ‘loss of business and revenue.’ This is in addition to the case already before the court where it is seeking damages amounting to Sh4.9billion as fuel and business loss, yield shifts and inefficiency issues.


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