Controversy over inclusion of LPG in new Kipevu Oil Terminal

Oil tanker Mt Frixos discharge crude oil at Kipevu terminal at the port of Mombasa in 2006. [Andrew Kilozi, Standard]

A surprise decision to include a Liquefied Petroleum Gas (LPG) import line to the proposed Kipevu Oil Terminal (KOT) has generated controversy over the expected increase in construction costs of what is already an expensive project in addition to safety concerns.

Sunday Standard has established that the state is set to meet this month with powerful players in the petroleum industry to evaluate new designs to the project whose construction tender was awarded last year.

According to correspondence between the Kenya Ports Authority (KPA), which is carrying out the project, and the Petroleum Institute of East Africa (PIEA), the new plan is to construct not one but two LPG lines.

The second one will be handed over to private companies as the government runs the first one.

“We propose seven connections at the proposed Common User Manifold (CUM) with end flanged connection to future manifold extensions, the proposed size of the connections is 24 inches diameter,” PIEA wrote to KPA on December 7 last year.

“We wish to point out that LPG is part of the deliverables,” KPA responded.

In petroleum industry parlance, a Common User Manifold (CUM) can connect importers to a single piece of infrastructure they can use to access their products from different ports. PIEA, which has been heavily involved in the change of design, is the umbrella body of all petroleum players.

Good supply

China Communications Construction Company (CCCC) was in September last year awarded the Sh40 billion contract to construct the new port.

The new terminal will have the capacity to handle four vessels of up to 100,000 (Dead Weight Tonnage) and was initially supposed to be built for discharging fuel to tanks owned by the Kenya Pipeline Company (KPC) and other oil companies.

KPA insists this change in design is according to a government policy of increasing access to LPG.

“The government is trying to move as many people as possible from firewood and charcoal to gas. This can only be met if there is good supply,” said KPA Managing Director Daniel Manduku.

The Port of Mombasa currently has only two oil terminals that are ageing and too small to handle the increasing quantities of imported oil and gas. KOT is supposed to supplement the Shimanzi port and old Kipevu terminal.

However, due to safety issues brought about by the location of the new KOT which is at the entry of Kilindini harbor, the government had initially not considered having an LPG line on it as it would have been too dangerous.

It is said big players in the petroleum importation industry, compounded with pressure from powerful politicians who want a stake in the billions of shillings this change in design would bring them, convinced KPA to reconsider.

At least 20 companies have expressed interest in constructing and owning a stake of the second line even before construction starts. A top Jubilee leader has a stake in two of the companies that have expressed interest and has been using proxies to pile pressure on KPA.

The two LPG lines will run just next to the Liwatoni Fisheries Complex that was commissioned by President Uhuru Kenyatta in September last year. The complex, which is currently under construction, is supposed to enable the docking of large fishing and patrol vessels. It is part of the government’s plan to improve Kenya’s capacity to gain from the global blue economy.

Parallel structures

In essence, the government will be exposing itself to seven other players in the importation of LPG by creating parallel gas offloading infrastructure that will be operated by third parties. Effectively, this could render the government’s LPG line a white elephant unless it can get itself enough business.

“We all know that government is not good in doing business. Why should we deny other players something like this? The winner in this case is the public,” Manduku defended KPA.

Those in the know say the ideal situation would have been if KPC was given the rights to operate a single LPG offloading line and then allow the third party operators to use it. Apart from saving taxpayers their money, it would also enable the state to earn some revenue. 

Now apart from increasing the new port’s construction costs, which are already too high, the new plan being pushed by industry players could prove catastrophic in the event of an accident at the Kilindini Harbour, according to sources familiar with the matter.

According to best practice, an LPG offloading or loading plant should not be at the entrance of a closed harbor due to the flammable nature of gas. If an accident was to happen, ships will not be able to leave or access the harbor for hours until it is declared safe. Then there is the possibility that insurers could push their premiums higher against ships.