Kenya Petroleum Refineries Ltd (KPRL) has secured a Sh21.2 billion loan from Standard Chartered Plc, giving it the financial muscle to start importing its own crude from July 1.

 

The move sets the stage for Kenya’s sole refinery to convert into a merchant facility that will allow it to import its own crude, refine, and sell to local and international marketers.

 

Presently, KPRL acts as a toll refinery, processing crude on behalf of oil marketers for a fee.

 

The arrangement has not augured well with marketers and consumers who say inefficiency at the refinery has raised the price of fuel.

 

The Energy ministry has published Legal Notices 25 and 26 to pave the way for the refinery to start importing crude. KPRL now says it needs an additional Sh12.7 billion to boost working capital and meet its new mandate. 

 

“We will now be able to procure oil, process it, and sell petroleum products to marketing companies,” said Mr Brij Bansal, the chief executive of KPRL, adding that the refinery was holding talks with other banks to raise the additional financing.

 

The conversion of the refinery into merchant status has twice been postponed from the initial December 2011 and March 2012 deadlines due to lack of a legal framework and inadequate funding.

 

Once the refinery starts processing its own crude, the move will free marketers to buy products from other international refineries as opposed to the current structure that requires them to process about 50 per cent of their demand at the refinery.

 

Heavy capital required in Kenya’s oil market is opening the way for multinational lenders like Standard Chartered Plc to get a piece of the country’s lending market.

 

Local banks shy away from lending the billions of shillings required in the oil market on insufficient capital and fear of concentrating risks in single entities. 

 

The refinery had earlier appointed Standard Chartered Plc to be the firm’s financial transaction adviser for its Sh65 billion planned upgrade.

 

In August, Barclays Bank of Kenya lent the refinery Sh1.14 billion for the upgrade.

 

KPRL said it would upgrade its production capacity to reach four million cubic metres by 2017, from the current 1.6 million cubic metres.

 

The upgrade will also provide water desalination facilities and ensure that its products comply with international environmental standards.

 

The plant, which was last upgraded in 1994 and has not seen any substantial investment since, is unable to meet its full production capacity of six million metric tonnes.

 

The upgrade is expected to sharply reduce the cost of refining oil and increase the amount of Liquefied Petroleum Gas (LPG) produced locally, leading to lower prices for consumers.

 

Fuel prices have a huge impact on inflation levels in the economy which is highly dependent on diesel for transport, power production, and agriculture while kerosene is used in many homes.

 

Industry players have pushed for the upgrade and conversion of the refinery into merchant status, saying petroleum products processed at KPRL cost more than imports, causing oil marketers to favour imports.

 

Source : businessdailyafrica.com