Essar’s refinery divorce with State firm nears conclusion

By James Anyanzwa

The eagerly awaited exit of Indian Essar Energy from the ownership of the trouble ridden Kenya Petroleum Refineries (KPRL) is finally on the brink of conclusion.

Energy and Petroleum Cabinet Secretary Davis Chirchir said the process of reviewing the deed of termination document, which spells out the terms and conditions of the exit, has been completed.

“National Treasury has been reviewing the deed of termination document which they should actually have finalised by now,” Chirchir told The Standard.  “We are now waiting for the National Treasury to call for the shareholders’ meeting. Once we have paid them (Essar Energy) off then we can make a decision on the way forward about the refinery.”

Essar Energy, through its subsidiary Essar Energy Overseas Ltd has already exercised a put option under the shareholders’ agreement to sell its 50 per cent stake in KPRL to Government at $5 million (Sh430 million).  The Government owns 50 per cent shareholding in the 53-year-old refinery. The State has described its five-year relationship with the Indian firm as a “difficult one”, and is considering converting the Changamwe-based refinery into a storage facility. This would mean KPRL store refined products before they are released to oil marketers.

Strategic partner

This is expected to ensure the market does not suffer severe shortages. Chirchir, however, said conversion of the refinery into a storage unit is “just one of the options”.

Industry analysts, however argue that the Government could also invite another strategic partner to come on board and take Essar’s place. Essar Energy, through its subsidiary Essar Energy Overseas Ltd, acquired a 50 per cent stake in KPRL for a total consideration of $7 million (Sh600 million) from BP, Chevron and Royal Dutch Shell. But the joint venture between Essar and Kenya has remained contentious since its inception in July 2009. “We need a shareholders’ meeting to agree on the modalities of parting ways. It has been a difficult relationship,” said Chirchir.

Essar Energy had committed to undertaking a $450 million (Sh4 billion upgrade of the facility before announcing plans to quit the partnership, 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 of the refinery “This refinery is not an asset that we can completely close. The option is to turn it into a tank to store more products,” Chirchir said.