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As the dispute degenerated into a show of might through writing letters, other oil marketers backed the government and Kenya Oil Refineries move to block KenolKobil from oil processing and importation. Energy Permanent Secretary Patrick Nyoike says KPRL had refereed the dispute to the ERC.
“The fee was revised in 1999 and later in 2006 because of increased cost of the business,” he said. “All marketers are paying the new fees except KenolKobil which resorted to litigation.”
KPRL on July 12, 2010 stopped crude processing oil imports by KenolKobil, which controls about 20 per cent market share locally, raising fears of a fuel shortage.
The agreement of June 15, 1966, with Kobil Petroleum Ltd was terminated on July 12, 2010. Kenya Oil Company Ltd (Kenol) in July 2009 changed its name to KenolKobil after buying Kobil.
KPRL has been seeking Sh456 million in processing fees but the figure has been revised to Sh600m. KenolKobil lodged a counter-claim of over Sh2 billion which, too, was increased upwards to Sh4 billion for loss of business.
“As you aware the processing agreement dated June 15, 1966 came to an end on July 12, 2010 pursuant to the letter of termination dated July 2009,” said KPRL’s Chief Executive Officer Raj Varma in a letter sent to KenolKobil.
KenolKobil says it has engaged William Chetweed of Bentleys, Stokes & Lowley Solicitor of London, England, to arbitrate the matter. All licensed importers are required to process 1.6 million metric tonnes of crude oil at KPRL to meet 50 per cent of the country’s needs of refined fuel.
The Energy Act requires all marketing companies to have crude oil processing agreement with the refinery to be allowed to import products. Termination of agreement led to the Open Tender System (OTS) and Ullage (storage space) Allocation Committees to exclude KenolKobil from the third quarter schedule of processing crude at KPRL.
KenolKobil was also excluded from sharing storage space of the pipeline from August 2010 and OTS for importation of crude oil and refined products. KenolKobil’s protests haven’t yielded much in its favour.
“We will hold yourselves fully responsible for all damages and consequential losses suffered and our claim will be sent to KPRL and will form part of our arbitration process in London,” said KenolKobil’s Managing Director Jacob Segman in a letter to KPRL.
Other marketers at a July 20 meeting at the Ministry of Energy declined to take up the share of crude oil KPRL processes for KenolKobil fearing increased costs of operations.
KenolKobil had requested for the meeting, where Total argued KenolKobil had no reason not pay the processing fee from 2006 as each firm incurs additional costs as result of refinery inefficiencies.
Shell as Industry Supply Co-ordinator said defaulting on both crude oil and refined products amounts to automatic withdrawal of ullage allocated, according to minutes of the meeting.
Hass Petroleum argued KenolKobil should comply with set rules as all are equally using the refinery and the Kipevu Oil Storage Facility in Mombasa.
Participants of the meeting resolved ERC should suspend KenolKobil’s importation licences until it settles crude oil processing obligations with KPRL and complies with regulations.
PARASTATAL heads who signed the Mombasa port community charter risk being sacked if their agencies do not deliver on the contents of the new entity. The charter signed between the government and the private sector aims at improving the movement of cargo from the port into hinterland