Essar to withdraw from Kenyan refinery project

After months of controversy and speculation, Indian energy giant Essar Group has announced it is giving up its 50 percent stake in Kenya's oil refinery.

Essar said its continued ownership of the Kenya Petroleum Refineries Limited (KPRL) was no longer tenable owing to the huge capital investments needed to continue sustainable operations.

Essar's African subsidiary, Essar Overseas, which is registered in Indian Ocean island of Mauritius, had in 2009 acquired the stake in east Africa's only oil refinery from international oil firms for $2 million. The Kenyan government owns the remaining 50 percent.

Under the sale agreement, the Indian company was to invest a whopping $450 million for upgrading the refinery, said to be unsustainably inefficient owing to its age and obsolete equipment.

"We as Essar Overseas have decided to pull out of this refinery and we intend to sell our 50 percent stake to any willing buyer," Brij Bansal, the company's chief executive, has been quoted as saying.

Bansal said his company had found its continued stay at the KPRL as untenable in the long run, citing the high capital input required to mordernise the refinery.

"Our company (Essar Overseas), will be seeking to exercise its right to sell its shareholding in KPRL and leave the Kenya government free to look for another partner", Bansal added.

Essar had in 2009 bought the stake from global oil firms Shell, BP Africa and Chevron Global after they decided to pull out of the Mombasa-based facility citing high operating costs.

The announcement by Essar comes at a time when it is facing charges of selling oil products at prices higher than the market average by 17 cents a litre.

Demanding that Essar be investigated, Kenyan parliament majority leader Adan Duale had declared: "The company is responsible for the high fuel prices in Kenya by hiking prices of its products by as much as 17 cents a litre."

This comes a few weeks after the Kenyan parliament said it would investigate activities at the refinery, accusing Essar of inflating oil prices and failing to commit cash for the facility's upgrade.

He claimed that Essar had bought its shareholding at a throwaway price and was intent on seeking from the Kenya government a two-year extension of its management contract, which is to expire in 2014.

It has now emerged that the Kenyan government wanted Essar out of the refinery, with the Energy Minister Joseph Njoroge asking the attorney general to advise on ways of terminating the contract over the failure by Essar to commit funds for upgrading the facility.

"Essar Energy will continue to work closely with the Government of Kenya to ensure a smooth transition of ownership," the company said in a statement.

(Maina Waruru can be reached at mainawaruru@gmail.com)