Court grants Kenol reprieve in refinery row

The battle between KenolKobil and the ministry of Energy has taken a new dimension after the listed firm obtained a court order that effectively bars industry regulator from paralysing its operations.

The High Court temporarily blocked the Energy Regulatory Commission (ERC) from cancelling the oil dealer’s operating licence pending the hearing and determination of the case.

Justice Fred Ochieng has referred the suit to Judicial Review, a division of the High Court, which will resolve the tripartite battle involving the regulator, Kenya Petroleum Refineries Ltd (KPRL) and the listed oil marketer.

There were fears that ERC would paralyse the firm after it ordered it to show cause in 14 days why the permit should not be cancelled over failure to process crude at the Kenya Petroleum Refineries. The commission later said it had cancelled the licence.

Forced to deny

Marketers are by law required to process part of their oil imports at the Mombasa-based refinery whose fees and inefficiency KenolKobil has been contesting. Meanwhile, in further escalation this week, Energy PS Patrick Nyoike was forced to deny KenolKobil charges that Kenya Pipeline Company was back to its Triton-era ullage (space) manipulation in favour of a certain importer.

On the court matter, managing director Jacob Segman in a sworn affidavit said ERC’s decision was made to assist KRPL in coercing or harassing them into making disputed payments without determination of an arbitrator or court of law. The commission had informed KenolKobil that the company’s import licences of petroleum products had been revoked for failing to process crude at KPRL from July 13 this year.

“KenolKobil is in clear breach of provisions of legal notice No. 197 dated November 28, 2003 as it has not processed crude oil at Kenya Petroleum Refineries Ltd since July 13, 2010,” ERC’s director general Kaburu Mwirichia had on September 2, 2010 said in a letter. In the dispute with the oil firm, KPRL claimed Sh456 million processing fees latter revised to Sh600 million.

KenolKobil, on the other hand also lodged a counter-claim of over Sh2 billion which was increased to Sh4 billion for loss of business. KenolKobil said in a letter sent to ERC through Sharpley Barret & Advocates that KPRL breached the Energy Act by stopping processing crude for the firm without authority or approval of the regulator.

“We are surprised ERC has not asked KPRL to show cause why its licence should not be revoked for this blatant and glaring breach of law and its licence requirements,” said the letter dated August 21. Lawyer Destario Oyatsi who signed the letter said KPRL is permitted under the Energy Act and the refinery no power to stop providing a statutory service to any oil marketer without the approval of ERC.

He said KenolKobil in compliance with Legal Notice No. 197 imported crude oil, which was delivered to KPRL for refining and the cargo is still in custody of the refinery after the marketer’s processing agreement was terminated. The letter said ERC has to take action to ensure KPRL complies with the law and does not abuse its position as a statutory monopoly by refusing to render service to KenolKobil, which is its captive customer.

Termination of KenolKobil’s refining agreement in July this year led to Open Tender System and Ullage (storage space) Allocation Committees excluding KenolKobil from third quarter of 2010 schedule of processing crude at KPRL. KenolKobil was also excluded from sharing of storage space of the pipeline from August 2010 as well as excluded from OTS for importation of crude oil and refined products as sellers and buyers.