Essar Energy’s exit from Kenya oil refinery to cost $3.3 million

April 23, 2014 | East Africa, Refining & Processing

Nairobi, Kenya | – The Kenyan government has outlined the terms and conditions for the exit of Essar Energy, an Indian firm with which it co-owns Kenya’s only oil refinery in Mobassa.

The move now sets the stage for Essar Energy to relinquish the 50 per cent stake it has held in the Kenya Petroleum Refineries Limited since 2007.

A source privy to the negotiations between the Treasury and representatives of Essar Group, told Nogtec that the government would pay up to Sh283 million ($3.3 million) for the break-up if it gets the approval of the office of the Attorney-General. The source declined to be quoted due the sensitivity of the matter.

Cabinet Secretary for Energy and Petroleum Davis Chirchir said he was aware that the document had been sent to the AG’s office and that the government was keen on ending its partnership with Essar as soon as possible.

“I am aware that Henry  Rotich, the Cabinet Secretary for the National Treasury has already sent the deed of termination to the AG. We want to conclude this matter as soon as possible so that it can allow us to forge ahead with other plans,” said Mr Chirchir.

Essar acquired 50 per cent shareholding in the refinery in 2007 after three international oil companies – Shell, BP Africa and Chevron Global Energy – that held a share at KPRL  exited.

The government then started shopping for a strategic investor with the capacity to inject capital for the upgrade of the refinery. Essar Group, through its wholly owned subsidiary Essar Energy Overseas Limited, acquired the stake at a cost of $5 million.

The Indian firm also paid $2 million as consideration for the waiver of its pre-emptive right after the exit of the three oil marketers. However, last year, the firm announced plans to exit the partnership amid questions over its commitment to upgrading the refinery as was agreed when it came  on board.

Essar said it had been informed by a series of studies conducted by international consultants into the technical, economic and funding elements of an upgrade of the Mombasa refinery that “the upgrade is not economically viable in the current refining environment”.

Due to failure by the two shareholders to reach an investment decision, the refinery has since last year shut down operations, leaving the country to entirely rely on imported fuel.