Kenya Pipeline Company calls for investment in private fuel stores in new business model
Posted on : Monday , 20th July 2015
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Private investors will for the first time get an opportunity to invest in the lucrative petroleum storage business in a new model that seeks to free cash flows for the Kenya Pipeline Company (KPC).
The company’s chairman, John Ngumi, announced yesterday that KPC would not be investing in additional storage tanks in an expanded network within counties, but would instead invite private players to set up the storage facilities.
“We would prefer that investors who are land owners in the counties develop and own the storage facilities,” Mr Ngumi said in a major shift that would cut KPC’s monopoly in the storage of petroleum products.
Migori and Busia counties are prime targets for KPC’s proposed business plan because they are border crossing points. Northern Tanzania, Uganda and Rwanda depend on road transport to move their petroleum imports through Kenya.
The state corporation, which is mandated to store, transport and deliver petroleum products across the country through its pipeline system and depots said it would be extending the petroleum pipeline beyond Kisumu and Eldoret terminals to the border towns in under two years.
Other counties where private investors could be contracted to set up storage facilities are in densely populated regions, especially Central Kenya, that currently receive petroleum transported in tankers.
Allowing private investment in petroleum storage tanks would take the form of a public-private partnership, where investors would be allowed to charge a specified amount for every litre of the different oil commodities, Ngumi said.
He made the announcement after formally signing loan agreements with six banks to fund construction of a new pipeline between Mombasa and Nairobi.
Co-operative Bank and Standard Chartered are among the five local lenders on the list of providers, each granting Sh5.8 billion in a 10-year facility. South Africa’s Rand Merchant Bank is the only foreign lender in the credit line, which KPC said it secured under “very friendly” terms.\
Single-largest loan
The six lenders have agreed to similar terms for the $350 million (Sh35.7 billion) loan, which would attract an interest rate of Libor +5.83 per cent. Libor, the London Inter-Bank Offer Rate, is the most widely used interest rate in the international financial markets.
Ngumi, who was appointed board chairman in April, was among the arrangers of the loan, as he is an executive of the Standard Bank of South Africa, locally trading as CFC Stanbic. The loan is the single-largest credit facility accessed by a public institution in Kenya.
The new pipeline is expected to eliminate stock losses and lower petrol and diesel transportation costs.
Petroleum retailers pay an average $5 (Sh510) per 1,000 litres in pipeline transport costs to KPC, and $12 (Sh1,223) per 1,000 litres moved on road.
Ngumi said KPC was fully cushioned from foreign currency movements because the loan is dominated in dollars, as are the project costs and the company’s revenues.
Source : IN 2 EAST AFRICA
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