Demand for bitumen to rise as road construction gathers speed

By Morris Aron

As everybody focuses on oil, dealers in little known a bi-product of petroleum are laughing all the way to the bank.

Demand for Bitumen—highly viscous black thick substance used for waterproofing and as an adhesive in road construction—is at an all-time high due to the increased number of road projects currently underway across the country.

Bitumen dealers say the outlook for the next five years looks positive, especially with the devolved government system that promises a lot of construction in the counties as well as the on-going road projects.

"Demand for bitumen is quite high now that there is a lot of road construction, both underway and planned," says Mr Sami Ismail, the managing director of Bitu-Bulk Handlers, a bitumen dealer who controls 50 per cent market share by stock.

"There is a lot of potential, especially in South Sudan, then the wider East Africa and Comesa regions."

Petroleum experts say since the turn of the millennium, it has generally been a good year for bitumen traders as the Government and other investors make significant investment to construct roads unlike the 1990s when road construction was virtually absent.

So far, the infrastructure projects have exceeded Sh200 billion in the road construction sector alone with the results evident across the country and in urban centres.

Construction projects

Bitumen dealers project demand in Kenya to hit the 25,000 metric tonnes due to the many planned and ongoing construction like the expansive Thika Road.

"Over 20,0000 tonnes of bitumen will be used this year in road construction," says Ismail whose stock stands at 60,000 tonnes being the sole firm that can supply bitumen from Russia in Africa.

Data complied by Petroleum Institute of East Africa shows that the Mombasa-based Kenya Petroleum Refineries Ltd produced 3,358 tonnes of bitumen between January and March this year.

The main sources of imported bitumen are Egypt, Saudi Arabia, Iran and Turkey.

Statistics from the Kenya Revenue Authority indicate that increased road construction activities led to a rise in the use of bitumen with 7,000 tonnes consumed in the first quarter of last year.

Consumption has risen steadily from 12,405 tonnes recorded in 2009, to with 16,677 tonnes recorded in 2008 and all time high of 17,733 Tonnes 2010.

Other firms involved in selling bitumen include Shell, Total, KenolKobil, Engen and Pan African Petroleum among others.

In an earlier interview with Mr George Wachira, director of Petroleum Focus — a consultancy firm — Kenya has a facility for handling imported heated bitumen at Mbaraki along the Indian Ocean shore in Mombasa.

Engen-owned Mbaraki facility has a capacity of 3,000 tonnes.

"It acts as a wholesaler due to being the only player with storage handling facilities and is therefore the only bulk importer," he said.

But as business looks good for the industry, there are a number of issues that have continued to plague the sector.

"Despite having all the approvals from internationally respected institutions such as SGS, one is still required to literally carry some amount of bitumen to the ministry of energy for testing," says Mr Ismail.

"I find this cumbersome, time consuming and backward."

In addition to the physical examination, bitumen is taxed as oil product and unlike a construction industry material.

Tough requirements

As it stands, bitumen attracts 10 per cent import duty, 16 percent VAT, Petroleum Development Levy of Sh0.40 and an import declaration fee of 2.25 per cent.

In addition, it is a requirement by the Government that imported bitumen must have a certificate of origin and comply with specifications set by Kenya Bureau of Standards.

Then there is the Ministry of Roads’ compliance certificate if the bitumen is to be used for any government-financed project.

"Some of these regulations need to be reviewed or synchronized to reflect the tax patterns for example of heavy construction materials such as caterpillar that are zero rated to encourage infrastructure development," said Mr Ismail.

But perhaps what is plaguing the industry most is the issue of contracts as the market is filled with middlemen and brokers. But soon, the issue is going to be addressed through a formally registered organisation where all the players consult.

The body will discuss among other things how to improve doing business in East Africa and the COMESA region where opportunity for bitumen business is very high.