Kenya Pipeline Company (KPC), the largest state-owned oil corporation in Kenya, has recently taken control of Kenyan Petroleum Refineries Ltd (KPRL), which filed for bankruptcy. The KPC gained government approval to acquire the assets from KPRL, which bolsters its advantage over Tanzania in providing petroleum products in the region. The takeover was announced on July 7, 2023, and is part of the government's plan to revive the country's oil refining industry.
According to Business Insider Africa, the acquisition includes 45 storage tanks with a total capacity of 484 million liters, positioning Kenya with abundant storage space for petroleum products through the new Kipevu Oil Terminal 2. The Kenyan government has said that it plans to reopen KPRL and make it a major player in the regional oil refining industry. KPC's expertise in pipeline transportation and storage will be essential to the refinery's revival.
A number of factors led KPRL to file for bankruptcy. First; financial difficulties. KPRL had been struggling financially for a number of years, due to a combination of factors, including high operating costs, declining demand for its products, and competition from imported oil products. Second, the refinery was built in 1963 and was outdated by the time it filed for bankruptcy. This made it difficult and expensive to operate, and it was unable to compete with newer, more efficient refineries. Third, the government of Kenya had imposed a number of policies that made it difficult for KPRL to operate, such as high taxes on fuel products.
The bankruptcy of KPRL was a major blow to Kenya's oil refining industry. It left the country reliant on imported oil products, which increased the cost of fuel and made the country more vulnerable to oil price volatility.
The takeover of KPRL is a significant step forward in the government's plan to revive the country's oil refining industry. It is expected to create jobs and boost economic growth in Kenya.
However, there is a fundamental problem with this acquisition. One of the reasons KPRL went bankrupt is because of government policies, which made the impeded the functioning of the oil company. But KPC, which is a state-owned corporation, is now the new owner of the KRPL. It means that it will enforce the same policies that led first to KPRL’s bankruptcy.
Like Nigeria, Kenya does not refine its own oil. It depends on imported oil, which is processed by privately-owned multinational oil corporations. But what should we expect now that the KPC took control of the KPRL and the Kenyan oil market, overall? The answer is simple: the ineffective allocation of resources.
The Kenyan government will try to control prices of the Kenyan oil market through subsidies, price floors or price ceilings, which will distort market mechanisms; it will make access to the oil industry more difficult for local oil corporations because it sees these local corporations as competitors; and it might impose tariffs on imported oil, which will increase prices for Kenyan consumers.
The acquisition of KPRL by the government via KPC is not a boon for the Kenyan oil industry but clear setback that will take Kenyan oil to inefficiency and mismanagement. The Nigerian government has done it before, and we saw the result. This is why President Bola Tinubu committed to the privatization of the Nigerian oil industry rather than its nationalization because he saw how nationalizing the oil industry led to the degradation of the Nigerian oil market. Kenya will unfortunately have to learn the hard way.