Mombasa oil refinery to buy and process own crude

By Philip Mwakio

The Kenya Petroleum Oil Refinery Limited (KPRL) is undergoing a major upgrade that will convert it into a merchant refinery.

This means the refinery that operates as a processing refinery currently will buy its own crude and process it before selling it.

Oil marketers import crude oil and take it to KPRL for refining before it is taken to the market. They pay a fee to KPRL for refining.

In an exclusive interview with The Standard at the KPRL Mombasa offices, the new Chief Executive Officer, Raj Varma, said the upgrade will see the refinery’s processing capacity increase.

"After the upgrade, we plan is to operate the refinery as a merchant refinery and not a processing one as is the case currently," Varma said.

Majority shareholder

The CEO was seconded from Essar Engineering Services of India, the new majority shareholders of KPRL alongside the Government.

An increase in capacity from the current 1.6 million tonnes to four million tones per annum will benefit consumers and allow it to produce more finished products locally, Mr Varma said.

The upgraded refinery, the CEO added will be able to process sour and heavy crudes and improving quality of products which will meet the Afri-IV standards.

The sour and heavy crudes are cheaper unlike the current sweet and light crudes.

KPRL was established in 1963 and has been processing sweet and light crudes, which are expensive.

Varma said the upgrade work will take three years and cost of between Sh30 billion and Sh40 billion. "Financing for the upgrade venture will be by way of debt and equity where KPRL will borrow loans and the shareholders contribute towards the project," he added.

Varma said they were yet to identify a firm to undertake the refinery upgrade but added state that they were negotiating with several firms and would soon award the contract for the upgrade work.

He said the refinery had enough storage capacity. Its current production of 1.6 million tonnes per annum is in excess of the plant’s official capacity of four million tones per annum.

Retain workforce

Varma dispelled fears that the new shareholders may want to offload the existing KPRL workforce. "The company has no plans to make changes in the current workforce set-up. Should positions be left vacant, preference will be given to local workforce at the refinery," he said.

But expatriates would be sought for specialised and highly skilled personnel.

An exchange programme is underway with six of the KPRL staff currently on secondment to India to acquire new skills at Essar Oil refinery in Vadinar, in the State of Gujarat on the West Coast of India.

The Indian refinery produces 14 million tonnes per annum, and is currently being expanded in two phases.

Phase one will see it increase its production to 16 million tonnes per annum while phase two will increase its production to 34 million tonnes per annum.

Essar Group’s major investment in KPRL is its first overseas venture into oil refining. It also has interests in steel and telecommunication.