April 2025, Vol. 252, No. 4
Features
Kenya Puts Breaks on Sale of State Pipeline Company
By Shem Oirere, Africa Correspondent
(P&GJ) — Kenya paused the planned sale of East Africa’s biggest oil and gas pipeline operator, Kenya Pipeline Company (KPC), after recently appointed Energy and Petroleum Cabinet Secretary Opiyo Wandayi said the transaction would kill the company’s national and regional growth aspirations.
The sale of KPC was approved in 2023, under the country’s privatization program targeting at least 11 state-owned enterprises due to what the government said was “inadequate capital for investments and working capital due to dwindling government resources to invest in those entities.”
However, Wandayi in August 2024 termed KPC “a strategic institution, with serious national security implications.”
“As one of the most profitable government entities, with admirable well-thought-out divestitures, it would be imprudent to let go of the institution now,” Wandayi said.
He added Kenya would have to hold onto the pipeline company “for the foreseeable future and strategic positioning.”
KPC, a wholly government-owned company that began commercial operations in February 1978, was one of the most profitable state enterprises, generating huge dividends payout for government every year.
For instance, the government received a dividend of $39 million from the company during the 2022–2023 financial year, after its profitability surged by 21% to $59.2 million compared to $49.1 million the previous year.
“KPC remains the most profitable state corporation with both strategic roles and revenue targets,” a statement by the Ministry of Energy and Petroleum said previously.
According to the Cabinet memo announcing the privatization of the 11 government enterprises in late 2023, the sale of KPC, which is 99.9% owned by the National Treasury, with the remaining 0.1% being held by the Ministry of Energy and Petroleum, was meant to “generate additional revenue for the government.”
At the time of the announcement, Kenya faced a tax revenue shortfall that widened the country’s fiscal deficit from 6.3% of the gross domestic product (GDP) in 2022 to 7% in 2023, even as interest costs spiked.
Kenya’s public debt expanded from 66.7% of GDP in 2022 to 70.2% in 2023, “driven by increased loans to finance the primary deficit and by exchange rate depreciation,” according to the African Development Bank (AfDB).
Other state entities earmarked for sale include National Oil Corporation of Kenya, Vehicle Manufacturers Ltd., Numerical Machining Complex Ltd., Rivatex East Africa Ltd., Kenyatta International Convention Centre, Mwea Rice Mills Ltd., Western Kenya Rice Mills Ltd., Kenya Seed Company and Kenya Literature Bureau.
According to the National Treasury the government has inaequate capital to invest in the entities earmarked for sale and the privatization of KPC, in particular, “will encourage more private sector participation [and] hence, improve efficiency and competition.”
“Privatizing KPC will attract private sector capital investments and expertise and offer a good opportunity for expansion of the oil and gas pipeline infrastructure to unserved regions,” it said in its 2023 privatization program brief.
KPC, which was established in 1973 to provide an efficient, reliable, safe and cost-effective means of transporting petroleum products from the Indian Ocean city of Mombasa to the hinterland, has an oil pipeline network of 833 mi (1,342 km), with storage capacity of 884,000 cubic meters at seven sites and at least 11 pumping stations.
The approval of the disposal of KPC coincided with a time when the company was about to embark on an ambitious business diversification plan that would transform it into one of Africa’s premier oil and gas hubs.
For instance, KPC has been investing in alternative revenue generating business ventures, such as the fiber-optic cable business and the establishment of the Morendat Institute of Oil and Gas—an institution with three campuses that offer training and builds capacity of personnel in the oil and gas-related fields.
The pipeline company intends to utilize the fiber-optic cable infrastructure to improve Kenya’s internet connectivity “and create a new revenue stream by leveraging KPC’s existing infrastructure.”
KPC is also finalizing the acquisition of Kenya Petroleum Refineries Ltd., an entity previously set up by Shell and the British Petroleum Company BP, to serve the East African region in the supply of a wide variety of oil products. The Kenyan government, through the National Treasury, would transfer 100% of its shares held at KPRL to KPC without any monetary consideration according to a previous official statement by the National Treasury.
As of the end of June 2023, KPC said the acquisition process was still on, as the pipeline company is keen on boosting its storage capacity “to complement storage at Kipevu Oil Storage Facility and reduce demurrage charges.”
Kenya Pipeline Company’s takeover of KPRL, which ceased refining operations in September 2013, was first approved by the Cabinet in 2016. However, the process had been delayed for nearly seven years, with Wandayi saying in October 2024, “the government is in the final stages of merging the Kenya Pipeline Corporation and KPRL for optimal and efficient use of existing manpower and substructure.”
He said Kenya has no plans of investing in crude oil refining at the moment and all the KPRL infrastructure “will be used to store refined products.”
Earlier, Kenya’s auditor general said, in one of the latest audit reports on government agencies, that KPRL is “technically insolvent and, having closed its core business of oil refining, its continued existence as an ongoing concern is dependent upon continued receipt of income from assets leased to KPC Ltd. and support by its creditors and the national government.”
But even before the merger is fully complete, Kenya Pipeline Company has entered into a lease agreement with KPRL as an initial phase in the complete acquisition of the former refinery. KPC has been paying for the operational costs of the KPRL, as well as investing in infrastructure at the refinery “geared toward helping KPC in managing stock-outs and demurrage.”
When the acquisition of KPRL is completed, the Kenya Pipeline Company will bring under its portfolio several facilities owned by the defunct refinery: the 9 MW thermal power plant, a 150 tons/day bitumen plant, an eight ton/day grease plant, 377.7 acres of land, a 12,000 metric ton/day refinery complex, tank farms with capacity of 474,921 cubic meters, storage capacity of LPG 12,000 tons and truck loading infrastructure.
“Through these innovative endeavors, KPC not only strengthens its core business but also contributes to the technological and educational advancement of the region, ensuring a sustainable and prosperous future,” the company said in its latest annual report.
KPC, which handles up to 90% of landlocked Uganda’s oil imports through the Uganda National Oil Company, said it has been eyeing expansion within the East Africa region through initiatives such as “the capacity enhancement of existing pipelines, bottom loading facilities and storage facilities.”
At the time KPC’s sale was approved, the company’s management had alluded to plans for onboarding Rwanda, which mainly relies on the port of Dar es Salaam in Tanzania for its imports.
KPC Managing Director Joe Sang indicated in 2022 that discussions for onboarding Rwanda were at an advanced phase and once the talks are concluded, “We will sign a memorandum of understanding with Rwanda so that we can fully onboard them to our facility.”
Whether Kenya proceeds with the suspended sale of the pipeline company or not, KPC — so far a monopoly in Kenya and Uganda’s gas and oil white oil product pipeline transportation — remains one of East Africa’s best performing state entities, with a bright future.
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