By James Anyanzwa
NAIROBI, KENYA: Indian firm Essar Energy has finally given up on its joint venture business Kenya Petroleum Refineries Ltd (KPRL), which operates the refinery in Mombasa.
Essar Energy, through its subsidiary Essar Energy Overseas Limited is now exiting the Changamwe-based refinery.
The company 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 US$5 million (Sh430 million).
The Government owns 50 per cent shareholding in the 53-year-old refinery.
In a statement yesterday Essar Energy said its decision to exit from KPRL was informed by an extensive series of studies by international consultants into the technical, economic and funding elements of an upgrade of the refinery.
“ Following these studies, Essar Energy believes that the upgrade is not economically viable in the current refining environment,” said Essar.
The company explained that it would continue to work closely with the Government of Kenya to ensure a smooth transition of ownership.
The latest announcement comes amid discussion by the Kenyan parliament over the performance of the refinery and whether Essar has fully satisfied the terms of the partnership.
The joint venture between Essar and GOK has remained contentious since its inception in 2009 with parliamentarians alleging the government lost an estimated Sh20 billion in the deal.
Majority Leader Aden Duale told the Parliamentary Public Investment Committee (PIC) that the 50 per cent stake to Essar was sold for US$10 million (860 million) but the government made only US$2 million (Sh172 million) from the deal which was paid two years after Essar took over at the refinery.
While Essar has also questioned the viability of the venture, the Government has remained upbeat that the recent (June 2012) conversion of KPRL from a tolling refinery to a merchant refinery would boost KPRL’s performance.
Essar Energy acquired its 50 per cent stake in KPRL in July 2009 for a total consideration of US$7 million (Sh602 million) from BP, Chevron and Royal Dutch Shell.
Under the terms of the shareholders’ agreement established with the Government of Kenya at the time of the acquisition, Essar Energy has the right, under certain conditions, to exercise a put option under which the Government of Kenya would buy Essar Energy’s 50 per cent share of KPRL for US$5 million.
Essar Energy is a low?cost, integrated energy company with an established track record.
Essar Energy, through its subsidiaries, owns one of India's largest private power producers with 3,910MW of installed capacity and projects under construction to expand its capacity to 6,700MW.
Essar Energy, through its subsidiaries, owns one of India's fastest growing private sector oil and gas Companies with a diverse portfolio of exploration and production assets.
The Vadinar refinery, located in Gujarat, is India’s second largest private sector oil refinery with throughput capacity of 20 million metric tonnes per annum, or 405,000 barrels per day.