NAIROBI, Kenya: June 26 (Xinhua) — Kenyan government’s plan of creating a strategic fuel reserve to avoid regular supply crises that cause energy price hikes has moved closer to reality.
The discovery of commercial quantities of crude oil in the country’s drier region of Turkana, combined with an ongoing race to improve the production capacity of an ageing refinery, is pushing Kenyan authorities to seek for fresh sources of funding an energy expansion drive.
Kenya Petroleum Refineries Limited (KPRL), a state-owned refinery serving oil marketing firms in the east African region, recently entered a 250 million U.S. dollars deal with Standard Chartered Kenya, to finance the importation of its crude oil from July 1, raising hopes of a strategic fuel reserve soon.
KPRL Chairman Suleiman Shakombo said allowing the Mombasa-based refinery to begin its crude oil imports will help to further ease the bottlenecks of setting up a fuel reserve.
“We are moving away from being solely dependent on the oil marketers. We could not force them to have Strategic Reserves,” Shakombo said.
Kenya aims to create the strategic fuel reserves to amass some critical oil stocks which it would rely on from time to time to avoid speculative attacks on the international oil prices. The National Oil Corporation (NOCK), an agency created to help the government stabilize local fuel prices by competing with international oil companies operating in Kenya, sought an independent firm to undertake a survey and draw up a master plan for running the strategic fuel reserve.
NOCK officials in the past blamed the lack of funds for the failure to set up the strategic fuel reserves. With such a reserve, the country hopes to be able to contain supply shortages. Economists say should Kenyan officials move forward to create the strategic fuel reserves, the country could then begin to take charge of its economic crises, currently marked by the widening of the current account deficit, mostly a result of the Arab Spring, which hit oil import bill.
Kenya’s import bill shot up to 4.1 billion U.S. dollars in 2010 from 2.9 billion in 2009, a development that economist Ally Khan Satchu attributed to the Arab revolt that disrupted the production of oil. While the KPRL hopes to finance the strategic reserves, the importation of fuels will require sustained financing, with just part of the required 400 million dollars available to the refinery.
The cost of financing the construction of the fuel storage facilities is estimated at 470 million dollars while initial estimates showed the east African nation will require 1 billion dollars to keep 90-day strategic fuel reserves to keep prices stable. KPRL Chief Executive Brij Mohan Bansal said the refinery was switching off to an oil merchant from a toll station that charged for the cost of refining with no more interest in the final product.
Energy Ministry’s Permanent Secretary Patrick Nyoike said with the change of use from a toll refinery to a commercial refinery, the industry was gearing for more efficiency.
“With this kind of (working capital) agreement, we see ourselves acting as the government’s representative in setting up this strategic oil reserve. We are not reaping the all the benefits yet,” Shakombo told journalists after the refinery signed the deal with StanChart in Nairobi.
Kenyan officials said with an advanced refining capacity and higher hopes of curbing losses that were caused by poor electric power supply to the refinery, chances of the refinery becoming a more profitable business lay ahead.
“We will have the latitude to blend crude oil with cheaper crude oil from other places. It will give us the latitude to get something better for the Kenyan market,” Nyoike said.
Kenya hopes to radically invest in modernizing the refinery to tackle huge demand from the region. Nyoike said although the refinery’s initially capacity was at 4 million tonnes, the production was scaled down to 1.6 million tonnes.
“We (Energy Ministry) are very happy to witness the refinery agreement. It will ensure that we operate more accountably,” Nyoike added. Engineers at the refinery are under pressure to work towards a schedule that will boost production capacity.
“The processing of our own will bring in more cost controls.. the final journey would be realized when we are able to use the total refinery capacity by 2017,” Nyoike said. “By then, we might be able to access our own crude oil.”
The Ministry of Energy officials said plans to modernize the crude oil refinery to allow it to blend with other cheaper crude brands will also help resolve a long-standing dispute with oil marketing firms.
“The bone of contention between the KPRL and the oil marketing companies is the inability to deliver products. It was due to the power failures, which made it impossible to downgrade super petrol to regular which sometimes meant losses,” Nyoike said. (Xinhua)