By Morris Aron

Indian petroleum giant, Essar Group, has concluded its bid to acquire a 50 per cent stake in Kenya Petroleum Refineries Ltd (KPRL).

Essar Group made the announcement on Friday after a year of negotiations to buy out three oil majors that owned the facility with the Government.

Following conclusion of the deal, Essar and the Government will invest $400 million (Sh22 billion) in the next three years to upgrade the refinery’s production capacity to one million barrels a day.

The refinery has a capacity of about 72,000 barrels a day.

"The conclusion of the deal fits our strategy in expanding to Africa’s petroleum industry and positions our company as a key player in this region which has immense oil reserves," said Mr Prashant Ruia, the promoter-director of Essar Group.

"Our model in India is to be a refinery with retail and market distribution. We have 1,500 gas stations in India, which we operate on a franchise basis. we will see how we can bring that model to Kenya," he said.

Essar paid $10 million (Sh760 million) to acquire part of KPRL after a competitive bid steered by Wood McKenzie Consultants of the UK, edging out Oil Libya and Reliance Industries.

Pre-emptive rights

The company also paid an additional $2 million to the Government to waive its pre-emptive rights. The rights allow an existing shareholder to purchase any additional shares if a chance arose before any other third parties are considered.

Sourcing for an investor began last year after studies showed the 67-year-old refinery needed to be modernised to meet growing demand for petroleum products in the region.

Previous shareholders including Chevron, Shell and BP turned down the offer to increase their shareholding and raise money needed for the exercise saying the planned upgrade had failed to meet their investment criteria. "We are happy to conclude the deal and will immediately embark on upgrading the facility," said Prime Minister Raila Odinga.

The Prime Minister’s office coordinated the process of sourcing for a new investor under the PM’s Round Table initiative. Once upgraded, the refinery will also increase current production of liquefied petroleum gas, from the 30,000 tonnes to 120,000 tonnes a year.

The deal comes barely weeks after Uganda reported massive oil reserves find approximated at over 500 million barrels.