State set to decide on future of Mombasa oil refinery

By James Anyanzwa

Kenya: The fate of the moribund Kenya Petroleum Refineries Ltd (KPRL) will be known Wednesday.

This comes seven months after India-focused firm Essar Energy announced plans to quit its partnership with the Government in the refinery.

The refinery, which stopped operations on September 4 last year, could be converted into a storage facility but the Government is also considering other options.

A highly placed source in Government told The Standard that a meeting has been set for Wednesday to formalise the planned separation between Essar Energy and the Government, the co-shareholders in the Mombasa-based refinery.

“There is a meeting scheduled for Wednesday under the auspices of the National Treasury to resolve the outstanding issues and agree on the way forward,” a senior Government official who did not want to be named said.

According to the source, the high- powered shareholders’ meeting would comprise State law office, Treasury, lawyers representing Essar Energy, lawyers representing KPRL and the KPRL officials.

The latest development comes after it emerged that 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.

This has triggered intervention by the National Treasury to bail out the struggling refinery whose operations have faced intense resistance from oil marketers.

“We have been giving them loans to operate. They will repay once the facility becomes operational,” said the source.

“Essar have indicated they want to exit and the Government really doesn’t mind Essar exiting because it will now get the opportunity to run the refinery.”

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 Kenya Petroleum Refineries to the Government at $5 million (Sh440m).

Shareholding

The Government has 50 per cent shareholding in the Kenya Petroleum Refineries Ltd.

Operations at KPRL were stopped in September last year and since then the plant has been idling, as a decision on the way forward for the refinery is determined.

Essar Energy had committed to undertake a $450 million upgrade of the facility before announcing plans to exit from the refinery.

It explained that the facility was not economically viable in the current refining environment.

The company said it arrived at its decision to exit from KPRL following an extensive series of studies by international consultants into the technical, economic and funding elements of an upgrade of the refinery.

Oil products from Mombasa-based refinery serves customers in Kenya, Uganda, Rwanda, Burundi, Tanzania and parts of the Democratic Republic of Congo (DRC).

But international traders are looking to gain market share, and also are interested in a range of new refinery projects in the region.

Under the agreement oil marketers are required by law to buy at least 40 per cent of all their fuel from the petroleum refinery.

But the refinery has come under sharp criticism from fuel distributors over the quality of its products.

 They want it shut down so that they can buy cheaper and better imports from suppliers of their choice.

Essar Energy acquired its 50 per cent stake in KPRL in July 2009 for a total consideration of ShSh609 million ($7 million) from BP, Chevron and Royal Dutch Shell.

The Indian enegy giant was expected to inject cash in the facility to improve quality of its products and enhance efficiency, which are two key factors that informed its strategic parnership with the Government.