Essar Energy refinery exit awaits Cabinet sanction

The Government says an agreement has been reached on contentious issues that have stalled the exit of its co-shareholder Essar Energy from the Kenya Petroleum Refineries Ltd (KPRL).

Cabinet Secretary for Energy and Petroleum Davis Chirchir yesterday said a Cabinet paper has been prepared to that effect, pending approval by the Executive.

Mr Chirchir said a common position has been adopted by the joint shareholders and its approval by the Cabinet could put the final nail in the coffin of the friendship between the Government and the Indian firm.

“We have agreed on everything but because of the issue of collective responsibility we have to present it to the Cabinet for approval,” Chirchir told The Standard yesterday, adding that a relationship of such a nature must be handled with utmost care.

Chirchir explained that what has been agreed upon is the framework for the exit of Essar Energy from the Mombasa-based refinery but declined to elaborate on the details of the controversial issues that have held back the process for close to 10 months.
Last year, Essar Energy announced plans to quit its partnership with the government in the KPRL. However, the delayed conclusion of the deal in which Essar Energy is selling its 50 per cent stake in KPRL to the Government has dealt a big blow to the refinery’s finances. The operations at KPRL were stopped on September 4, 2013 and since then the plant has been idling, as a decision on the way forward for the refinery is determined.

This has seen the National Treasury move in to bail out the struggling refinery whose operations have been met with intense resistance from oil marketers. Its future is still uncertain but various options are being considered, including converting it into a storage facility.

Essar Energy, through its subsidiary Essar Energy Overseas Limited has already exercised a put option under the shareholders’ agreement to sell its 50 per cent stake in KPRL to the Government of Kenya at $5 million (Sh435 million).

Essar Energy had committed to undertake a $450 million (Sh39.15 billion) upgrade of the facility before announcing plans to exit from the refinery, saying the facility was not economically viable in the current refining environment. It said it arrived at its decision to exit from KPRL following a series of studies by international consultants.