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Overview of the Petroleum Industry in Kenya

The petroleum industry is broadly divided into three segments namely: upstream (exploration and production), mid-stream (storage, refining, and transportation) and downstream (supply and distribution).

The discovery of oil, gas, and coal in Kenya opened the country to new levels, placing it in a good position in the energy producers list. The country continues to grow in its exploration activities, even as new investors show interest. This has empowered the industry, attracted review of the rules of business and even the adoption of new technologies in the practice.

It is important to point out that the increase in local and regional demand for petroleum products has in recent years not been matched by the development of requisite infrastructure to meet supply chain and market requirements. Kenya however, continues to import petroleum products till commercialization begins later on in 2022. The petroleum industry employs nearly 50,000 people directly and another 70,000 indirectly.

kipeda commerce

Petroleum Business Operations

1. Sourcing for Petroleum products

a) Obtaing Import and Export License

Petroleum business in Kenya is one of the most lucrative investments within the energy sector. However, to engage in the business, you are required to obtain the import and export license from the Energy and Petroleum Regulatory Authority (EPRA). EPRA is the government agency, among other mandates, that regulates the electrical energy, petroleum and related products, renewable energy and other forms of energy.

b) The Sign ing of Transport, Storage, and Agreement (TSA)

Once a company has been awarded a license for import and export, it is expected to sign Transport, Storage and Agreement (TSA) with Kenya Pipeline Corporation (KPC). The KPC is a state corporation mandated with the provision of efficient, reliable, safe and cost-effective means of transporting petroleum products from Mombasa to the hinterland. In pursuit of this objective, KPC constructed pipeline network, storage and loading facilities for transportation, storage, and distribution of petroleum products.

c) Paying the line fee

Having signed the Transport, Storage, and Agreement (TSA), a company is required to pay the line fee to Kenya Pipeline Corporation. The line fee caters for the dead stock petroleum that is kept throughout the pipeline network to maintain the pumping pressure as it cannot be empty. To this end, you’ll be required to pay USD 1 million or 1000 litre cube of all the grades Premium Motor Spirit (PMS), Illuminating Kerosene, (I.K) and Automotive Gasoline Oil (AGO). It can be a combination of varying quantities for each grade but must add up to 1000 litre cubes.

d) Participation in the Open Tendering System (OTS)

Once you sign the Transport, Storage, and Agreement (TSA) you are allowed to participate on the (OTS) Open Tendering System that is organized monthly by the Ministry of Energy. The company will be allocated 550-litre cubes of the three grades for a test run that will run for three months. This is done to establish the capability of the company to operate. Once you have been given allocated the product, you have only five days to buy the product. This includes the cost of the products and applicable taxes.

2. Selling the Petroleum Products: Securing the Stock

Any products sold outside Nairobi and Mombasa, all dealers use the Kenya Pipeline Corporation (KPC) depots to sell. If in Nairobi, the petroleum will be in custody of private terminals. KIPEDA has been using Kenya Pipeline Corporation (KPC) and Lake Oil terminus to sell to the customers for the last 10 months. Once the product is bought to the private petroleum terminus, the owner of the terminus and the dealer agree to release product for sale only upon payment for the specified volume. The agreement typically runs for 30 days for every batch. KIPEDA requires its customers to pay upfront before it supplies the products

Selling the Petroleum Products: The Process

a) Having secured the product in the private terminus, KIPEDA informs all its customers that products are available and orders can now be placed and processed.

b) Customers will then send Local Purchase Order (LPO).

c) Once the order is received, we advise the customers on the prices and the availability of each grade in whatever depot across the country. Thereafter, we advise customers to go the bank and pay for the requested volume to KIPEDA Bank accounts.

d) Once KIPEDA confirms the payment receipt, it sends release order to the terminus. This is accompanied by a purchase order specifying the volume and the corresponding amount.

e) The order is processed and is ready for collection within 30 minutes at the specified terminus. The customer will load the product and go ahead to supply.