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To address the inefficiencies, the report committee recommended the fast-tracking of the Kipevu Oil Terminal II construction so as to reduce the demurrage costs/FILE


Inefficient port operations costing taxpayer avoidable demurrage charges: EPRA

NAIROBI, Kenya Oct 5 – Inordinate delays in the processing of shipping vessels have been cited as a major contributor to spiraling fuel costs with the taxpayer footing hefty bills as a result of operational inefficiencies resulting from breach of demurrage agreements.

With the existing charter imposing a USD45,000 daily rate for vessels not cleared within the agreed timeline of 48 hours, Kenya Pipeline Company spends an estimated Sh11o million monthly to clear demurrage charges for delayed vessels.

The Energy Petroleum Regulatory Authority (EPRA) on Tuesday told the National Assembly Committee on Finance that operational inefficiencies by the Kenya Ports Authority (KPA) and the Kenya Pipeline Company (KPC) had in recent months derailed the offloading of fuel at the port of Mombasa.

“There is an opportunity to do better but as of now we have operational challenges in relations to KPA and KPC. If you are going to discharge fuel into the system you are just bound to create space. We also have issues on management of the board at KPA which I don’t have the mandate to speak into,” said Kiptoo.

Poor infrastructure at the Kipevu Oil Terminal (KOT) was also cited as a cause for the delays in discharging shipping vessels.

The Kipevu terminal, built in 1963, lacks capacity to meet East Africa’s demand for oil products estimated at 450 million litres a month.

KOT handles over 90 per cent of the country’s imports, some are transit products for Uganda, Northern Tanzania, Rwanda, Burundi, Eastern DRC, and South Sudan.

The explanation by EPRA on the cause of delays at the dock by oil shipping vessels was however turned down by lawmakers who termed the answers unsatisfactory.

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The Chairperson of the committee Gladys Wanga stated that the EPRA was frustrating the committee by declining to give a clear answer on the matter and that they were taking the committee in circles.

“It seems we are not getting the answers we need on this matter. We needed the Cabinet Secretary for Petroleum here for answers. It seems we might not get the answers we need on this matter of demurrage charges,” said Wanga.

Open tendering system for importers of fuel was also cited as one of the reasons for high demurrage charges which the legislators termed as man-made. Lawmakers questioned why the Ministry of Petroleum granted seven shipping companies access to the port to supply fuel, aware of the capacity challenges at the oil terminal.

Kitui Rural MP David Mwalika accussed the petroleum ministry of running a skewed  tendering process which allows importers to collude with the KPC officials to delay at the jetty so as to swindle the taxpayers in form of demurrage charges.

“There is corruption in this tendering system. We are told only seven shipping vessels discharge in a month. What is the point of having the seven and the oil jetty cannot accommodate all of them? The Ministry is only occasioning delay so that charges are incurred,” stated Mwalika.

EPRA said due to the Mombasa port acting as transit for fuel for other neighbouring countries there is need to have oil shipping vessels at the dock to ensure continuous supply of fuel and avert the crisis of shortage.

Director of Petroleum and Gas Edward Kinyua revealed to the committee that  shipping vessels discharging fuel at the Shimanzu Oil Terminal or any other private jetty are entitled to demurrage charges for 10 days after the lapse of the 48-hour time-frame beyond which shipping firms are required to foot the expenses.

Kinyua noted that the policy directive on timelines was not subjected to the Kipevu Oil terminal since it was under the supervision of the government.

“The policy directive that vessels should not stay more than ten days for control purpose. If it stays for more than ten years, then the importer will incur the cost. For Kipevu oil terminal we have no timelines it just depends on the availability of the jetty, the officials at the KPC and KPA are however tasked to ensure there is no unnecessary delay,” said Kinyua.

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Members of the committee however raised issues with the fact that the Ministry has put in place policy guidelines at the private oil jetty only paving way for negligence at the Kipevu Oil Terminal.

“The policy directive by CS only targets the private jetty but the public jetty can even go for 17 or 21 days. Its ironical that a policy is issued against private jetty there is a deliberate effort to make sure there is delay and the demurrage charges are incurred. This money could be going to some people. There is something you are not telling us,” said Molo MP Francis Kamau.

Kiptoo however defended the petroleum ministry from accusations of condoning costly delays  saying the government has no authority to oversee day-to-day operations of the private jetties.

“We don’t have a line of sight for private oil terminals that’s why we have that policy directive. Again we don’t have absolute control of the private oil terminals they might cook numbers when it comes to calling for payment of delays in the jetty,” said Kiptoo.

Members of Parliament had proposed that the Kenya Petroleum Authority (KPA) should fast-track the completion of the Kipevu Oil Terminal II to eliminate demurrage costs.

“Once the Kipevu II is completed then the demmurage charges will be minimally felt by the fuel consumers,”Kiptoo noted.

KPA is expected to complete the construction of a new and bigger oil terminal in Kipevi within three months. The terminal which is 93.5 percent complete, will have four berths capable of handling import and export of five different hydrocarbon products which include crude oil, heavy fuel oil, LPG and three types of white oil products.

The Old Kipevu Oil Terminal can only handle one oil tanker a situation which has proven to be detrimental to the fuel consumers in the country who have to pay delay costs to shipping vessels on petroleum products.

The parliamentary committee was expected to table its report on Tuesday after it was granted an additional week to conclude its probe on fuel costs in a ruling by Speaker Justin Muturi on October 5.

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