Essar Energy to walk out of Kenya refinery venture

Excercises put option to sell its stake to Government of Kenya

Essar Energy on Thursday announced it was planning to exit Kenya Petroleum Refineries Ltd (KPRL), a joint venture that operated an oil refinery at Mombasa, Kenya. The company would sell its 50 per cent stake in the project to the local government for $5 million.

Essar Energy, through its subsidiary Essar Energy Overseas, has exercised a ‘put’ option in the shareholders’ agreement to sell its stake in KPRL to the government of Kenya. Interestingly, this is the only 50-year-old refinery in the Sub-Saharan African region, that caters to the needs four countries like Kenya, Uganda, Rwanda and Burundi.

“This decision follows an extensive series of studies by international consultants into the technical, economic and funding elements of an upgrade of the Mombasa refinery. Following these studies, Essar Energy believes the upgrade is not economically viable in the current refining environment,” the company said in a statement. It added it would work closely with the Kenyan government to ensure a smooth transition of ownership.

In July 2009, Essar Energy acquired 50 per cent stake in KPRL from BP, Chevron and Royal Dutch Shell for $7 million.

Under the terms of the shareholders’ agreement with the Kenyan government, under certain conditions, Essar Energy has the right to exercise a ‘put’ option, under which the government of Kenya would buy its stake in KPRL.

The Kenyan government was planning to make the refinery into a storage facility, citing that it would be cheaper to import refined fuel directly rather than processing it in the country. The refinery management had recently requested the government to shut it down too, according to reports by the African media.

However, later the ministry has lined up a revival roadmap for the project.

For a long time, the refinery was working at a lower capacity of about 35,0000 barrels per day as per reports. The planned total capacity is around 1.6 million tonne.