Essar blames Government for problems facing refinery

By JAMES ANYANZWA

Nairobi, Kenya: Blame games have ensued between the co-shareholders of the troubled Kenya Petroleum Refineries Ltd  (KPRL) ahead of their planned separation.

This comes amid uncertainties over the shareholders’ meeting planned for this month (October).

Indian firm, Essar Energy, has given up on its joint venture business and has arranged for a swift exit from the Changamwe- based refinery in Mombasa.

The firm, 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 KPRL to the Government at Sh4.3 billion ($5 million). The Government owns 50 per cent stake in the 53-year-old refinery.

Details on the share purchase agreement including negotiations on the refinery’s huge portfolio of liabilities are to be discussed in the planned shareholders’ meeting.

The meeting will also provide a platform for the shareholders to review the challenges facing the refinery and the agreeable manner through which Essar will exit the firm.

But even before the sale is concluded Essar has started blaming Kenya for a part shutdown of the Mombasa refinery, saying the government did not enforce a deal to make local suppliers buy fuel from the plant.

Brij Mohan Bansal, chief executive of the refinery said Essar was ready to upgrade it in June but financial consultants advised them against it, saying it would be economically unviable. “The government also was not honouring the support agreement where price protection through refinery products is promised until an upgrade project is complete,” said Bansal

The National Treasury, however, denied that the Government failed to honour its contractual obligations saying such a move was tantamount to scaring away investors.

“It is very important for the government to respect contracts otherwise investors will not have confidence in our country as an investment destination,” explained Esther Koimett, National Treasury Investment Secretary.

Regional network

Oil products from Mombasa, which Essar co-owns with the Kenyan government, serve 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.

Linus Gitonga, director in charge of petroleum at the Energy Regulatory Commission, denied that government had flouted any agreement regarding the refusal by marketers buy from the refinery.

“If the refinery had issues with marketers abusing any agreement, they needed to notify us so that we commence investigations,” said Gitonga. “If that did not happen, then there is no reason to apportion blame.”

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

Bansal said the plant has been left holding 10,000 tonnes of unsold products in its reserves for the last two months.

“Nobody is buying crude products from the refinery, and for now all we are doing is just preserving the facility and dispatching residual products. We shut down most of the plant because we are not processing,” he said.

In April, hundreds of workers at the refinery protested against reports that the government was going to shut it down. Kenya’s energy minister Davis Chirchir in June ruled out any possibility of closure, saying the government was keen to upgrade the facility. — Additional reporting by Reuters