KenolKobil to build Sh1.4bn lubricant plant in Mombasa


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MK254

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KenolKobil will set up a Sh1.4 billion factory in Mombasa for production of its Castrol-branded lubricants as the firm eyes tax savings to boost its bottom line.

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.

“We will set up a new blending plant in Mombasa in the next one or two years at a cost of between $10 million (Sh958 million) and $15 million (Sh1.4 billion),” said KenolKobil managing director David Ohana at the signing of the agreement in Nairobi.

Lubricants are blended from base oils, a refinery product, and infused with additives.

KenolKobil has another smaller lubes plant in Kenya with a monthly production capacity of 600 tonnes for its own lubes. The planned unit will have a monthly capacity of 1,000 tonnes of lubes in what is set to intensify competition in the local petroleum sub-sector.

READ: KenolKobil signs deal with BP to supply Castrol lubricants

KenolKobil currently imports the Castrol lubricants from South Africa, which attracts an import duty of 25 per cent.

The oil marketer is seeking to import only inputs that attract 10 per cent duty for local blending, critical in cutting costs.

Lubricants, a by-product of oil, are used in reducing friction in machines, mostly in automotive, industrial, fishing, racing, mining and aviation industries.

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 Nairobi Securities Exchange-listed firm said on Tuesday it would re-launch Castrol brands in the next two months, in a rejuvenated marketing campaign.

The deal with BP will potentially strengthen Kenol’s financial health with the firm having been on a rebound from a record Sh6.3 billion loss reported in 2012.

Kenol returned to profitability in the year ended December 2013, with a positive bottom line of Sh558.4 million. In the period to December 2014, the marketer reported a net profit of Sh1 billion.

KenolKobil to build Sh1.4bn lubricant plant in Mombasa
 

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