Oil marketer, KenolKobil plans to construct a lubricants blending plant in Mombasa jointly with BP South Africa to cash in on the lucrative business. The oil marketer said on Tuesday the financing of the plant would be through a joint venture with oil major BP Southern Africa, which is the owner of Castrol lubes.
The two firms on Tuesday signed a deal giving KenolKobil exclusive distribution rights for Castrol lubricants, ending a tussle that had seen BP attempt to repossess the brand from Kenol and award it to its former partner Shell.
The plant is to be constructed at an estimated cost of between Sh960 million ($10 million) and Sh1.4 billion ($15 million).
According to KenolKobil Group Managing Director David Ohana, the firm is seeking to capitalise on the lucrative lubricants market and exploit growing demand for the product in the domestic and export markets to grow its revenues and market share.
He said setting up a local blending plant would also provide the much-needed tax relief. “When you import, you pay 25 per cent but when you blend locally, you pay 5 per cent tax,” Mr Ohana said yesterday.
KenolKobil currently imports the Castrol lubricants from South Africa, which attracts an import duty of 25 per cent. Unlike motor petrol and diesel, its prices are not controlled by the Energy Regulatory Commission and analysts reckon that the products offer high profit margins.
KenolKobil, which is Kenya’s third-largest oil dealer by market share after Total and Shell, will sell the Castrol brand in Kenya only despite having a footprint in Tanzania, Uganda, Zambia, Rwanda, Burundi and Ethiopia.
The oil marketer is seeking to import only inputs that attract 10 per cent duty for local blending, critical in cutting costs.
“Our chances of success are high in the partnership with KenolKobil. We are on the verge of re-entering the Kenyan market with this partnership,” said BP Africa markets sales director Stanley Dewing.