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Kenya: Refinery to Increase Fuel Processing Charges in Oct
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Business Daily (Nairobi)
23 April 2008
Posted to the web 23 April 2008
Zeddy Sambu
Consumers should brace for more fuel hikes in coming months following an increase in local refinery costs.
Business Daily has learnt that Kenya's sole refiner is to adjust its charges by about 10 per cent to $2.35 per barrel (159 litres) from October.
It will be the second increase in two years after another one was effected in 2006 by the Kenya Petroleum Refineries Ltd, raising the processing cost from $1.70 to $$2.15 per barrel.
"The refinery has written to us about the plans. Margins are already depressed and we will have to pass on to consumers," said industry sources .
Industry players however, are opposed to the plans saying it favours importation of white oil.
"In order to process crude oil, there has to be a positive processing margin. If the processing margin is negative, you are better off importing refined products," said a source who did not wish to be named.
For a long time now, the processing margin at KPRL has been negative, sometimes to the order of $40 per metric tonne or more, meaning oil companies will not prioritise processing in the Mombasa refinery, even at a marginal processing fee of say $1 per barrel.
"The main advantage of importing oil products is that you import only those products that you require, in the quality that you require, and when you require them," added our source on condition of anonymity.
Each quarter, Kenya's sole refinery receives some 450 000 tonnes for processing into various white products on behalf of oil markets and consumers. Under the law, oil marketers are required to process 1.6 million tonnes of crude every year at the facilities.
Although this provision causes losses to the marketers, they are passed on to the Kenyan consumer. Currently, the value of products output from the facility is lower than input costs by three per cent, making it more cost effective to import.
The ministry of energy is understood to be arbitrating on the issue before the adjustments take effect. Crude oil is imported by a winner of the highly competitive crude importation tender administered by the Energy ministry.
The winner delivers light crude popularly known as Arab Medium or heavy crude , popularly known as Murban Crude. On average, the Mombasa refinery receives about four shipments of Arab Medium and 16 Murban Crude cargoes in a year.
KPRL refines 75 per cent Murban (light) and 25 per cent Arabian medium. The Kenyan supply pattern is normally driven by dual purpose kerosene and diesel demands, meaning select crudes and also select yields that maximise the two products are prioritised.
Since 1973 when the facility was set up, the Mombasa refinery has not seen any serious investment. There are now plans to upgrade the refinery to process more valuable products from fuel oil, making the overall production cost lower.
"It is also expected that the refinery will generate as much as 13 megawatts of its own electricity, say industry data from the Petroleum Institute for East Africa (PIEA).
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Gulf Energy - a new entrant to the local market cites KPRL's capacity to produce high end products competitively as the main reason why locally processed products cost more than imports, putting pressure on profit margins.
KPRL's products, including liquefied petroleum gas, unleaded premium gasoline, regular petrol, automotive gasoil, industrial diesel, fuel oil and special products like bitumen and grease are sold into the Kenyan market and exported to neighbouring countries including Tanzania, Uganda, Burundi and Rwanda.
Total demand for products in these markets is estimated at five million tonnes per year, three million of these are consumed in Kenya alone.
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