By ERIC OMBOK
Essar Energy, co-owner of Kenya Petroleum Refineries (KPRL), said it will sell its 50% stake in the countrys only oil refinery to the government after studies showed an upgrade is economically unviable.
Through Essar Energy Overseas Ltd., its exercising a $5 million option to sell under the joint-venture shareholders agreement, leaving the government with full ownership, the India-based company said in an e-mailed statement today.
KPRL said in April its considering raising $1 billion of debt and equity for a planned upgrade of the facility to boost processing capacity to 4 million tpy by 2019 from 1.6 million tpy now and improve efficiency.
Outdated equipment and lack of investment in maintenance means it costs at least 6% more to refine fuel at the 50-year KPRL than to import it, according to the company.
Essar Energy believes that the upgrade is not economically viable in the current refining environment, the company said, according to the statement.
Essar acquired a 50% stake in the company in July 2009 for $7 million from BP, Chevron and Royal Dutch Shell, according to the statement. At the time, Essar agreed to help modernize and expand the facility, the government said. The work had been initially slated for completion in 2015-16.
The Nairobi-based Daily Nation newspaper reported Oct. 1 that the Kenyan Energy Ministry wrote a letter last month saying Essar has not lived up to the expectations of the government to upgrade the refinery.
Kenya in May said it may shut the processing facility. A month later, oil marketers threatened to only buy imports from abroad, violating a Kenyan law requiring them to purchase about 40% of all fuel supplies from KPRL.
Kenya, which discovered its first oil deposit last year, plans to build a refinery in the northern town of Isiolo or Lamu, where a second Indian Ocean port is under construction.
Two calls to the mobile phone of Brij Mohan Bansal, KPRLs managing director, went unanswered. Manoah Esipisu, spokesman in the presidency, didnt answer his mobile phone.