Treasury yet to take up its stake in Uganda refinery

Kenya: The Government is wavering on a decision to invest in the planned oil refinery to be constructed at Hoima District in Uganda.

National Treasury Cabinet Secretary Henry Rotich yesterday said the Government is still reviewing the investment with the fate of the Mombasa-based Kenya Petroleum Refineries Ltd (KPRL) still hanging in the balance.

The refinery will be owned 60 per cent by private investors while the remaining 40 per cent will be split among the five East African Community (EAC) member countries translating to eight per cent each.

“We are yet to confirm. We are still reviewing this investment before we can make a decision,” Rotich told The Standard, adding that Essar Energy’s planned exit from KPRL would soon be announced.

“We are waiting for a legal opinion on the deed of settlement from the Attorney General. As soon as we get it, we will go ahead to complete the transaction,” he said.

The Government has ruled out the possibility of shutting down KPRL, saying once its separation with its co-shareholder, Essar Energy of India, is concluded, it will embark on reviving the facility.

“Closing the refinery is not on the cards. There are many options, but closing is not one of them,” said Energy Cabinet Secretary Davis Chirchir.

Essar Energy, through its subsidiary Essar Energy Overseas Limited, has exercised a put option under the shareholders’ agreement to sell its 50 per cent stake in KPRL to the Government at $5 million.

The Cabinet has approved the disengagement procedure. Essar bought the stake in July 2009 for $7 million from BP, Chevron and Royal Dutch Shell, leaving the Government with a 50 per cent stake.

But there are indications that the Government might buy back the shares at a price lower than the contractual value.

“There are so many things that are going be netted from that ($5 million),” said Rotich.

Plans for the construction of a refinery in Uganda followed a regional refineries study commissioned by the East African Community (EAC) member countries in 2008.

The report recommended that a refinery be put up in Uganda and that the Mombasa refinery be immediately upgraded following the discovery of oil and gas in the region.

Essar Energy had committed to undertake a $450 million upgrade of the facility before announcing plans to quit the partnership last year, saying the facility was not economically viable in the current refining environment.

Since the approval of the refinery study report by the EAC summit, Uganda has progressed their plans to build a refinery whose capacity is projected to be at 60,000 barrels per day.

The initial phase of the project is to be completed in 2015 while the full project is expected to be complete by 2017.