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By PHILIP NGUNJIRI
Special Correspondent

Kobil Zambia, a fully-owned subsidiary of the Kenyan oil company, Kenol Kobil Group, has acquired a 15 per cent shareholding of Lublend Ltd.

The company acquired the shareholding from Total Zambia Ltd.

The venture is aimed at expanding the group’s regional presence and improving on supply chain logistics, market share and profitability.

Lublend is a lubricants blending plant in Ndola, in the copper belt region of Zambia.

The new acquisition, according to head of corporate affairs Edwin Kinyua, will enable the company to beef up its lubricants blending and supplies within the mineral-rich region.

The plant will boost Kobil’s lubricant supplies within the export markets of the Democratic Republic of Congo (the Lubumbashi area), Zimbabwe, Malawi and Mozambique, and will provide the group with the capacity to service the region’s potential, said Mr Kinyua.

Prior to the acquisition, Kenol Kobil was blending all its lubricant supplies for Kenya and the subsidiaries — except Kobil Tanzania — in Mombasa, and distributing them using trucks.

The acquisition is expected to reduce operational costs, and distributing lubricants to customers. The acquisition will also reduce operational pressure on the Changamwe-based lubricants blending plant, which will now concentrate on the growing Kenyan oil market and that of the landlocked countries in the region.

Kobil Zambia Ltd has also signed a long-term fuel supply agreement with one of the largest and newest multinational mining companies in Zambia, Albidon Mining Ltd.

Albidon is currently in the final stages of its site construction, and will be mining nickel in the southern region of Zambia for export.

Preliminary mining activities have started and Kobil has commenced supplies of low sulphur diesel to Albidon. The annual supply to Albidon will be between 2,800 and 3,000 cubic metres of low sulphur diesel.

These new ventures are part of an aggressive plan by Kobil Zambia to penetrate the mining sector in Zambia, which has for long been dominated by the traditional multinational oil companies, with their parent companies mostly in US and Europe.

The mining sector in Zambia and the Southern African region has been registering impressive growth due to favourable metal prices in the international market.

In its expansion plans, Kenol acquired its trading partner, Kobil Petroleum Ltd and incorporated Kobil Ethiopia at the beginning of the year. Prior to the approval of the acquisition, Kenol and Kobil were operating under a joint operation agreement.

Kenol being a public listed company means that the acquisition of Kobil, a player with a robust performance record, was expected to contribute substantially to the company’s bottom line.

It was also expected that the company, now with a larger asset base, would negotiate more favourable borrowing terms from banks, which will allow it to tap other sources of finance.  In addition, it was expected that the company will have more negotiating power with overseas oil producers, and manufacturers of essential products such as base oils for the manufacture of lubricants.

In spite of the challenges, the company’s earnings from sales volumes increased by 52 per cent, with 27 per cent from Kobil and the balance  resulting from expansion in Kenya and the region. Gross margins increased by 48 per cent, with Kobil contributing 36 per cent.

Between October 2007 and March this year, the oil industry has been hit by steep increases in oil prices, reaching unprecedented record levels and extremely high prevailing freight-on-board premiums and sea freight. Supply constraints arising mainly from pipeline and POOR storage poor capacity did not spare the company.

This has been compounded by the indirect tax increases in some subsidiaries and the up-front payment system in Kenya and Tanzania,  as well as non-recoverable value added taxes in Tanzania new stocks management system introduced by the Kenya Revenue Authority  and aggressive competition.

Distribution costs increased by 199 per cent with Kobil contributing 64 per cent of the increase, due to Kenol/Kobil Group continuing to engage in alternative distribution solutions to road transport from Mombasa to various destinations in Kenya and neighbouring countries, and from Tanzania to Rwanda, Burundi and Uganda.

The oil industry expects high oil prices and distribution constraints in the region to prevail for sometime.

Source: The East African

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