Dissolve oil refinery firm, MPs say

A parliamentary committee has called for Kenya Petroleum Refineries Limited (KPRL) to be dissolved immediately, saying this will save taxpayers billions of shillings being paid to the moribund company by Kenya Pipeline Company (KPC).

The firm has paid Sh1.3 billion in expenses to KPRL, said David Pkosing, chairman of the National Assembly’s Public Investment Committee (PIC), quoting from the Auditor General’s reports for the 2020-2021 and 2021-2022 financial years.

“Kenya Pipeline Company has been paying KPRL charges they don’t even understand why, because KPRL stopped the processing of fuel a long time ago and the company was therefore a moribund,” explained Pkosing.

“What is the justification of paying such an amount of money?”

He was speaking on the sidelines of a sitting by the committee in Mombasa, where MPs are examining the Kenya Pipeline’s audited accounts for 2020/2021 and 2021/2022.

The Auditor General’s report on Kenya Pipeline for the year to 30 June 2022 shows expenditures of Sh.13,791,313,695 as direct costs including Sh2,530,110,019 for pipeline maintenance.

Included in the costs are lease payments to KPRL of Sh1,308,851,308 for use of a pipeline network, storage tanks and associated infrastructure.

Comparing total lease costs with lease income for the year revealed that Kenya Pipeline made income of Sh12,491,324, resulting in a net loss of Sh1,296,359,984.

“In addition, the lease agreement revealed that the lease payments were based on expenses incurred by KPRL during the year covered by the lease agreement,” the Auditor General’s report says.

“However, the company was not in control of costs incurred by KPRL and therefore could not institute measures that could minimise the costs in line with realisable income.”

Pkosing observed that once KPRL is dissolved, its workers would be absorbed into Kenya Pipeline in the same way Kenya Ferry Services workers were absorbed by Kenya Ports Authority.

He said KPRL’s assets will go to Kenya Pipeline, thus eliminating further costs associated with the pipeline network, storage and related infrastructure.

 Last year, the Government announced that KPRL had been acquired by Kenya Pipeline, limited through the transfer of shares, in a move Energy Cabinet Secretary Davis Chirchir said would bolster the utilization of KPRL assets, which was closed down in 2014 because it was incurring constant losses.

The Cabinet had approved the acquisition in 2023, explaining that this would enhance the petroleum supply chain infrastructure, security of supply and efficiency.

The CS said the acquisition would lead to greater use of liquefied petroleum gas (LPG) in Kenya through the development of LPG bulk import handling and storage facilities.

“You will recall that our refinery was closed down sometime in 2014 because of challenges of what we call yield shift … The product that we were refining was not matching the output that was planned and therefore it was not making a profit,” Mr Chirchir said at the time.

“And it has been a while and there is no reason why KPRL is not working for us as a prime asset with 370 acres,” added the CS, who reckoned that Kenya Pipeline had “a very strong balance sheet” of about Sh150 billion that would help the dormant refinery facility instantly roar back to life and improve the economy of Mombasa.