KPRL closure ‘not on the cards’ as Essar exit concludes

The Ministry of Energy and the National Treasury have completed negotiations with Essar Energy on the company’s planned exit from the Kenya Petroleum Refineries Ltd (KPRL).

This brings closure to a year-long back and forth discussion between the Government and India’s Essar, as well as five years of a strained relationship between the two on how best to operate the run-down refinery.

Revival plans

The two ministries would not divulge the details of the deal reached with Essar, but it is expected that the Government will have to part with billions to buy back the Indian investors’ 50 per cent shareholding in the refinery.

The Energy ministry also ruled out the possibility of shutting down KPRL, saying once the deal is concluded, it would embark on finding ways to revive the facility.

Energy Cabinet Secretary Davis Chirchir said the “big” investment in the refinery would not be allowed to go down the drain.

“Closing the refinery is not on the cards. There are many options, but closing is not one of them. It is not an option,” he told Business Beat.

Essar Energy, through its subsidiary Essar Energy Overseas Limited, has exercised a put option under the shareholders’ agreement to sell its 50 per cent stake in KPRL to the Government at $5 million (Sh442.5 million). Cabinet has approved the disengagement procedures.

Essar bought the stake in July 2009 for $7 million (Sh532 million at the time) from BP, Chevron and Royal Dutch Shell, leaving the Government with a 50 per cent stake.

Essar Energy had committed to undertake a $450 million (Sh39.8 billion) upgrade of the facility before announcing plans to quit the partnership last year, saying the facility was not economically viable in the current refining environment.

It said it arrived at its decision to exit from KPRL following an extensive series of studies by international consultants into the technical, economic and funding elements of an upgrade.

Last month, the Government said an agreement has been reached on the contentious issues that stalled the swift exit of its co-shareholder.

Collective responsibility

“We seem to have agreed on everything, but because of the issue of collective responsibility, we had to present it to the Cabinet for approval,” said Mr Chirchir. “We have reached a consensus on the way forward, we have a common position.”

The delayed conclusion of the deal has dealt a big blow to the refinery’s finances.

Oil products from KPRL used to serve customers in Kenya, Uganda, Rwanda, Burundi, Tanzania and parts of the Democratic Republic of Congo (DRC). The facility has, however, not processed crude oil for a year.

The Treasury has had to come to its aid this year, including advancing the refinery money to pay employees as it has not generated any revenue over the past 12 months.