KenolKobil challenges BP’s attempt to re-enter Kenyan market
Kenya’s KenolKobil is challenging BP’s recent attempt to seek a distributor for its branded lubricants, including Castrol. In a letter to BP CEO Bob Dudley, the Nairobi bourse-listed firm threatened legal action against the British oil giant.
“In our view your action to seek the distributorship of Castrol products in Kenya is misplaced and clearly in contravention and breach of the arbitration award and court order,” said Jacob Segman, chairman and group managing director of KenolKobil, in a May 21 letter to Dudley.
KenolKobil had a deal to supply Castrol lubricants with the original owner of the brand, Burmah-Castrol. In 2000, BP bought Burmah-Castrol for £3 billion (US$4.5 billion). The deal gave BP a presence in the Kenyan lubricants market, which was supposed to be managed by its partner Kenya Shell. However, Kenol sued and stopped the handover of the supply deal to Kenya Shell.
“The court ordered that the status quo be kept and that Kobil continues to be the sole distributor of Castrol lubricants in the whole of East Africa,” said Segman.
“In essence we put you in notice and reserve our rights accordingly. However we are willing to meet and discuss the matter further to find an amicable solution and avert a protracted and unnecessary legal dispute in Kenya court.”
BP exited the market in 2007 and sold its Kenyan business to partner Shell Petroleum Company, which later sold 80% of its African operations to London-based private equity firm Helios Investment Fund and Swiss commodity trader Vitol in 2011.
BP’s re-entry will heighten competition in a market dominated by firms like Kenya Shell, which changed its corporate identity to Vivo Energy Kenya, KenolKobil and Total Kenya. Vivo Energy distributes and markets Shell-branded fuels and lubricants in 14 African markets, including Kenya.
BP’s quest for a share of the Kenyan market also comes as marketers struggle to grow the lubricants market, which declined by 7.8% last year to 39,888 million liters. However, unlike motor fuel, lubricants prices are not controlled by Kenya’s Energy Regulatory Commission.
“Lubricants are a high margin business and this looks the stronger reason behind BP’s re-entry,” Patrick Obath, who was head of Kenya Shell when it acquired BP’s assets, was quoted by a local paper as saying.