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The East African : February 3rd 2014
The EastAfrican BUSINESS FEBRUARY 1-7,2014 KENYA PETROLEUM REFINERIES LTD Kenya says no to $1.3m refinery bailout The c≥ude oil ≥efine≥y ≥equested the money to pay employees and c≥edito≥s By KENNEDY SENELWA Special Correspondent K enya will not grant a request of Ksh110 million ($1.3 million) for a monthly bailout by the crude oil refinery in Mombasa. Energy Principal Secretary Joseph Njoroge said any financial support will have to await a decision by shareholders on the future operations of the facility, which is co-owned by the government and Indian conglomerate Essar. Kenya Petroleum Refineries Ltd (KPRL) is facing a heavy financial burden, which has left it unable to pay salaries as the plant has now not been operational for four months. This has put the jobs of over 300 people at risk. KPRL’s management estimates that at least Ksh110 million ($1.3 million) is required each month to keep the firm operational. KPRL said it needs the govern- ment’s financial support to avert threats of legal action from workers, banks and creditors. In October last year, Essar decid- ed to sell 50 per cent of its shares in KPRL to the government for $5 million. Shareholders are yet to finalise discussions on the Indian firm’s exit. “The government has not decided on whether to extend financial support to the refinery at the moment. We will make an announcement once the shareholders meet and make a joint decision on KPRL’s future,” said Mr Njoroge. The cashflow problems mean it could soon be unable to continue operations, hurting Kenya’s position as the hub of the oil trading business in East Africa. At stake are supplies to Uganda, Rwanda, Burundi and the DR Congo, which rely on the refinery for processed petroleum products. Debate has been raging in Kenya on whether the nearly moribund KPRL workers march along a street in Mombasa. The refinery has been unable to pay their salaries, putting workers’ jobs at risk. Picture: File refinery should be closed, even though the Kenyan government has insisted that it plans to upgrade it at an estimated cost of $450 million (Ksh40 billion). The refinery is now unable to meet its financial obligations as pressure to pay its debts increases daily after the last stocks of locally refined petroleum products were sold during the December festive season. KPRL chief executive officer Brij Bansal said by selling extra products generated due to better yield production, the plant could manage to pay employees’ salaries and some creditors. “All these stocks have been sold off; we will face a serious crisis-like situation from end of December onwards,” he said in a letter to Energy Cabinet Secretary Davis Chirchir and copied to Mr Njoroge . The refinery was meeting at least 300 wo≥ke≥s KPRL has been unable to pay workers’ salary as the plant has not been operational in four months By SCOLA KAMAU Special Correspondent THE INTERNATIONAL Air Transport Association (IATA) is urging African countries to open up their skies for airlines to boost air operations across the continent while bringing down costs. Officials at IATA, the global aviation lobby, said African governments should come up with an agreement to grant flying rights to African airlines. “Many governments, fearing dominance by other African carriers, deny these carriers market access, while granting limited rights to non-African airlines. It is easier to give rights to an airline that won’t compete on heavy intra-Africa routes,” said IATA in a state- Many African countries restrict their air services market. Picture: File 40 per cent of Kenya’s petroleum products needs. Two weeks ago, Mr Chirchir told parliament’s Public Investment Committee that the government had instructed its lawyers to draft a termination agreement spelling out the debts of each party. Essar believes KPRL’s planned upgrade for $1.2 billion is not economically viable in the current refining environment. The firm acquired a stake in the refinery in July 2009 for $7 million from BP, Chevron and Royal Dutch Shell. Mr Bansal requested the gov- ernment to expedite the process of separating with Essar. The refinery’s management wants to be involved in discussions to draw up a long term plan for the plant and the government to initiate immediate action to assist KPRL to settle payments due to banks and creditors. “We would like to reiterate our earlier request for your immediate visit to KPRL to help pacify employees who are getting impatient about their future in the absence of any communication,” said the letter to Mr Chirchir. Mid last year, marketing companies asked the government to en- 41 Executives confident of Rwanda’s economic g≥owth By BERNA NAMATA The East African BUSINESS leaders’ confidence in Rwanda’s economy is returning after being shaken by donor aid suspension to the country in 2012, which slowed economic activity. Improved donor sentiment in 2013 saw a resumption of aid, which largely funds the country’s development agenda. However, the economy is still feeling the lagged effect of the aid shortfall. Fresh data released by the TOUGH TIMES Kenya Petroleum Refineries Limited (KPRL) faces financial difficulties following its conversion from a contract to a merchant unit. The company converted its business model from toll refinery to a merchant refinery from July 1, 2012. Under the current business model, KPRL purchases its own crude oil for processing into refined petroleum products, which it sells to oil marketing companies. The refinery buys crude oil through the Open Tender System operated by the Ministry of Energy and Petroleum. sure KPRL compensates them Ksh7 billion ($84.3 million) for products lost as yield shift in processing of crude oil in the past. KPRL was, before July 1, 2012, a toll refinery charging marketers a fee for processing crude oil. This raised the issue of whether the government provided adequate protection for KPRL to operate as a merchant refinery importing crude oil for processing, with products being sold to marketers at a profit. Af≥ican count≥ies u≥ged to libe≥alise ai≥space ment. The Yamous- soukro Decision adopted in 1999 commits its 44 signatory countries to deregulate air services, and promote regional air markets open to transnational competition. Its implementa- tion has been held up by the long time taken to draw up continental-wide competition regulations, a competition authority, dispute resolution mechanisms, implementing provi- sions, and the incorporation of the Yamoussoukro Decision into the domestic legislation of many states. A 2010 World Bank Open Africa Skies report indicates that Africa is home to 12 per cent of the world’s people, but accounts for less than one per cent of the global air services market, a trend that can be reversed by liberalisation of its air space. According to IATA, after the European Union introduced their single aviation market, there was a 310 per cent increase in intra-EU routes between 1992 and 2009. Part of the reason for Africa’s under-served status, according to the IATA report, is that many African countries restrict their air services markets to protect the share held by stateowned air carriers. World Bank this week shows that Rwanda’s year-on-year GDP growth slowed to less than six per cent for the first time since 2010, on account of the lagged effect of the aid shortfall. Rwanda’s GDP slowed to 3.9 per cent in the third quarter of 2013 compared with 6.7 per cent in the same period in 2012, the lowest level of growth recorded in recent years according to figures released by the National Institute of Statistics Rwanda in early January. But business executives are confident that as the government — the largest employer — resumes spending, the economy will again grow rapidly. Gaining momentum With the major donors restor- ing aid to the country, Sanjeev Anand, managing director of I&M Bank Rwanda, said the economy is gaining momentum for growth in 2014 though the positive impact is likely to be felt in the second quarter of the year. Low levels of aid inflows and heavy government domestic borrowing in the second quarter of 2012 squeezed the banking sector’s room for expanding credit to the private sector, according to the World Bank. As a result, credit growth decel- erated sharply in the first quarter of 2013, reducing domestic demand for goods and services. Domestic demand contracted 1.4 per cent in the first quarter of 2013 (year-on-year), reducing GDP by 1.6 percentage points. “Contraction of consumption has been a key driver behind weaker domestic demand. All domestic demand components of GDP, including investment and particularly consumption, exhibited restrained performance compared with the previous half year,” the World Bank said, indicating that growth slowed to 6.6 per cent in 2013 against their earlier projection of 7.5 per cent.
January 27th 2014
February 10th 2014