Kenyan oil firms and distributors have signed agreements with the sole refinery to begin lifting refined petroleum products that had been delayed since July, when the refinery changed its mode of importing crude oil.
The Kenya Petroleum Refineries Limited (KPRL)'s Chief Executive Brij Bansal said in Mombasa on Wednesday the firm signed a new Product Offtake Agreement with the Oil Marketing Companies to sell its own processed oil products to them.
The KPRL said the purchase of crude oil through the Open Tender System (OTS), where the firm with the lowest bid gets the tender to import crude supplies.
The Mombasa-based refinery shifted to the merchant-model in July. Through the new system of operation, it processes its own crude.
The signing of the off take agreement follows days of wrangling between the ministry of energy, oil firms, a consumer protection body and the KPRL over cancellation of a tender for the supply of crude for November and December this year.
"During the tendering process, the prices are not quoted by KPRL, but by the oil importing companies. The ministry then awards the tender to the lowest bidder,"KPRL General Manager John Mruttu said.
Kenya is a small player in the global energy market that cannot influence the global oil prices. The basis of the tender is on cost of freight and the bidders profit margins which depend on discounts and premiums ruling at the date of tender.
KPRL is currently in negotiations with the crude oil importing companies for the re-opening of the tender for the supply of 160, 000 tonnes of crude oil for processing in November and December.
"The existing crude oil stocks will last until Oct. 28 and the new cargoes are expected to arrive shortly thereafter. There is therefore no reason to be concerned about security of supplies as there is sufficient time to mitigate possible shortage and enough time for the new import to arrive," Bansal said.
"There was a delay in signing the Product Offtake Agreement as issues relating to pricing of products and payment terms had not been agreed upon. Through continuous dialogue and intervention of Ministry of Energy, the issues have been resolved to a great extent," Bansal said.
Owing to the resultant delay in signing of the Product Agreement, the upliftment of products from the refinery in August and September was very poor against the allocation by the Ministry of Energy.
This resulted in huge build-up of crude oil and product inventories, hence significant demurrage on subsequent crude oil cargoes, the CEO said.
"These aspects were not planned but can happen when there is major change in philosophy of operation and we are glad that finally the product upliftment is picking up and we are hopeful that soon we will be in a position to start processing crude oil at normal rate of 133,000 tonnes per month or even more to make-up the short fall during the year to date," Bansal said.
He said steps are also being taken to improve the crude oil processing capacity to meet the demand for Kenya and its East African neighbors for refined petroleum products that they import from Kenya.