Kenya's sole refinery will start buying its own crude oil next month to start operating as a merchant refinery, a move that is expected to lower retail fuel prices in the country, its chief executive said. CEO Brij Mohan Bansal said the plant, which processes 1.6 million metric tonnes of crude a year, will no longer be just a toll refinery after signing a $250 million credit line from Standard Chartered Bank to finance crude imports.
"This is the first step towards merchant mode", which will help the company better manage inventories and establish strategic reserves of oil, Bansal told reporters after the signing of the deal. Its move into the market will add another competitor to Kenya's existing fuel marketers, which may help ease a range of problems in the energy sector including fuel shortages and high pump prices.
Until now, marketers have been importing oil and paying processing fees to the refinery, which is owned by the Kenyan government and Essar Energy. The refinery will now start to procure crude itself, process it and sell refined products to marketers as well as continuing to process oil for a fee. Kenya imports Murban crude from Abu Dhabi and the occasional Arabian heavy and medium crude through an open tender system (OTS). Fuel marketers place their bids, and the winner imports enough crude for the whole industry for a month.
Patrick Nyoike, permanent secretary at the country's ministry of energy, said the OTS system would remain. But the refinery will be able to source cheaper crude by not restricting itself to Murban and may even buy blended crude in order to lower import costs, Bansal said. Meanwhile, officials at the refinery said they were carrying out a study to determine how much more money it needs for an upgrade. The ageing and outdated plant, first built in 1963, is inefficient, contributing to higher retail fuel prices. Its management plans to modernise the plant by 2016/2017, a target date that it pushed back by a year after the discovery of oil in Kenya. Refinery officials hope the refinery will be able to process crude from Kenya as well as from its neighbours Uganda and newly independent South Sudan.