It’s official — Kenya will stop refinery operations

BY JAMES ANYANZWA AND MACHARIA KAMAU

KENYA: Kenya will operate without a refinery of its own, the Energy ministry has confirmed.

Energy and Petroleum Cabinet Secretary Davis Chirchir last week told Business Beat that once the government severs ties with Essar Energy, it would convert the Kenya Petroleum Refineries Ltd into a storage facility. This would be in line with recommendations made by the Energy Regulatory Commission.

The energy industry regulator in April recommended that KPRL — which is the only oil refinery in East Africa — be used to handle imported refined petroleum products, given that it was proving to be more costly to refine products at the facility.

ERC estimated that in the 28 months between December 2010 and April this year, the economy had lost Sh13 billion due to inefficiencies at the refinery.

This works out to about Sh15 million in losses a day. The money is factored into the retail price of petroleum products at petrol stations.

Mr Chirchir, however, said jobs would not be lost, adding that the about 300 workers would be redeployed to the 800,000 metric-tonne storage facility. KPRL currently uses only 260,000 metric tonnes.

“This refinery is not an asset that we can completely close. The option is to turn it into a tank to store more products,” Chirchir said. “We don’t want people to lose jobs because we are not closing the refinery.”

The government will have to take up the 50 per cent share Indian firm Essar Energy owned in the Changamwe-based refinery.

The National Treasury is expected to have at least six months to source for funding and complete the transaction.

Chirchir said the government plans to complete the transaction as early as possible.

“We are going to reduce this period.”

The conversion of KPRL into a storage facility will mean that Kenya will have to put up a new facility or use the planned Ugandan refinery if it decides to being refining petroleum. Chirchir said Kenya is still weighing its options.

Essar Energy announced plans to exit from the joint venture it operated with the government, saying the upgrade of the 53-year-old refinery is not economically viable in the current refining environment.

Essar had committed to undertake a $450 million (Sh38.8 billion) upgrade of the facility before announcing it had quit the venture.

This comes five years after the Indian firm, through its  subsidiary Essar Energy Overseas, bought 50 per cent shareholding in KPRL from BP, Chevron and Royal Dutch Shell at $7 million (Sh602 million).

Essar has exercised a put option under the shareholders’ agreement to sell its 50 per cent stake in KPRL to the government at $5 million (Sh430 million).

KPRL produces liquefied petroleum gas (LPG), gasoline, diesel, kerosene and fuel oil.

bizbeat@standardmedia.co.ke