Kenya Government deal with Essar worthy of more scrutiny

Raging debate over the ownership and running of Kenya Petroleum Refineries Limited should not be allowed to obscure several key issues.

First, the Kenya Government gave Essar Energy Plc of India the option to buy 50 per cent of the shares owned by Shell, BP and Chevron, after the three multinationals baulked at financing the facility’s modernisation programme. In its attempts to woo the government, Essar over-promised and, not surprisingly, has under-delivered.

Second, it is incumbent on the Parliamentary Committee on Energy to get to the bottom of reports alleging that the deal was not between the government and Essar, but with a subsidiary, Essar Energy Overseas Limited incorporated in Mauritius, perhaps with the sole purpose of giving certain Kenyans a 20 per cent shareholding in the plant.

Why, for instance, did the company reduce its offer to pay the government $11 million as goodwill to a mere $2 million?

Expensive fuel

Why did the parent company lose interest in pumping in the promised funds to upgrade the refinery, and now wants the government to continue protecting it against oil majors who argue that it is cheaper to import refined petroleum products than bring in crude oil for refining at the facility?

Indeed, conventional wisdom dictates that consumers are paying up to Sh3.6 more per litre of fuel because of the inefficiencies at the refinery.

Third, since the new owners have not invested a single shilling since they took over the refinery, they should not be paid anything close to what they are asking for. If it has suddenly dawned on them that they cannot make money without the government’s protection, they should do what entrepreneurs do in such circumstances throughout the world: walk away.

It is not fair to expect taxpayers to continue the subsidies that have now lasted over three years.