Kenya shops for new Mombasa refinery partner

MOMBASA, KENYA: The Government is considering inviting bids for a new investor for region’s only oil refinery, or converting it into a storage plant, after co-owner India’s Essar Energy said it plans to exit, officials revealed Friday.

Essar said in October it would sell its 50 per cent stake in the Mombasa plant after its plans for a $1.2 billion upgrade were abandoned on the advice of consultants who said it was not economically viable.

Linus Gitonga, the director of petroleum at the Energy Regulatory Commission, Kenya’s energy regulator, said once Essar’s exit is finalised by November 26, the government would take full ownership of the refinery and weigh its options.

Kenya’s government had formally accepted Essar’s pullout at a meeting held on Monday, Gitonga said.

“There are several options for government, including finding an alternative investor or converting the plant into a storage facility,” Gitonga told Reuters. “I don’t think shutting it down completely will be an option,” he said.

The decision to keep the plant working is backed by prospects for an oil and gas boom in the region following a string of discoveries in Kenya and Uganda and nearby states that could soon transform an area that has long depended on imports into an energy exporter.

Essar had planned to increase the refinery’s crude handling capacity to four million tonnes of crude per year (79,000 barrels per day) by 2018, up from 1.6 million now but oil marketers in Kenya, unhappy with the refinery’s products and costs, have called for it to be closed.

The company blamed the government for not enforcing a deal requiring local suppliers buy a certain portion of fuel from the plant, saying this had hurt the business, but Kenyan officials said Essar should have informed the government sooner that oil marketers were not supporting the refinery. Essar bought a 50 per cent stake in Kenya Petroleum Refineries Ltd in 2009 for $7 million from a group of oil marketers BP, Chevron and Royal Dutch Shell.

Although the government and Essar have agreed to part ways, they are yet to agree on how to handle the refinery’s current liabilities, which have grown while its struggled to move its stock of refined crude products, officials said.

Oil products from the plant serve customers in Kenya, Uganda, Rwanda, Burundi, Tanzania and parts of the Democratic Republic of Congo.

                                             — Reuters