Nairobi, Kenya – Kenya will not grant a request of Ksh110 million ($1.3 million) for a monthly bailout by the crude oil refinery in Mombasa reports local newspaper, the East African.
Energy Principal Secretary Joseph Njoroge said any financial support will have to await a decision by shareholders on the future operations of the facility, which is co-owned by the government and Indian conglomerate Essar.
Kenya Petroleum Refineries Ltd (KPRL) is facing a heavy financial burden, which has left it unable to pay salaries as the plant has now not been operational for four months.
This has put the jobs of over 300 people at risk. KPRL’s management estimates that at least Ksh110 million ($1.3 million) is required each month to keep the firm operational.
KPRL said it needs the government’s financial support to avert threats of legal action from workers, banks and creditors.
In October last year, Essar decided to sell 50 per cent of its shares in KPRL to the government for $5 million. Shareholders are yet to finalise discussions on the Indian firm’s exit.
“The government has not decided on whether to extend financial support to the refinery at the moment. We will make an announcement once the shareholders meet and make a joint decision on KPRL’s future,” said Mr Njoroge.
The cash-flow problems mean it could soon be unable to continue operations, hurting Kenya’s position as the hub of the oil trading business in East Africa. At stake are supplies to Uganda, Rwanda, Burundi and the DR Congo, which rely on the refinery for processed petroleum products.
Debate has been raging in Kenya on whether the nearly moribund refinery should be closed, even though the Kenyan government has insisted that it plans to upgrade it at an estimated cost of $450 million (Ksh40 billion).
The refinery is now unable to meet its financial obligations as pressure to pay its debts increases daily after the last stocks of locally refined petroleum products were sold during the December festive season.
KPRL chief executive officer Brij Bansal said by selling extra products generated due to better yield production, the plant could manage to pay employees’ salaries and some creditors.
“All these stocks have been sold off; we will face a serious crisis-like situation from end of December onwards,” he said in a letter to Energy Cabinet Secretary Davis Chirchir and copied to Mr Njoroge.
The refinery was meeting at least 40 per cent of Kenya’s petroleum products needs. Two weeks ago, Mr Chirchir told parliament’s Public Investment Committee that the government had instructed its lawyers to draft a termination agreement spelling out the debts of each party.
Essar believes KPRL’s planned upgrade for $1.2 billion is not economically viable in the current refining environment. The firm acquired a stake in the refinery in July 2009 for $7 million from BP, Chevron and Royal Dutch Shell.
Mr Bansal requested the government to expedite the process of separating with Essar. The refinery’s management wants to be involved in discussions to draw up a long term plan for the plant and the government to initiate immediate action to assist KPRL to settle payments due to banks and creditors.
“We would like to reiterate our earlier request for your immediate visit to KPRL to help pacify employees who are getting impatient about their future in the absence of any communication,” said the letter to Mr Chirchir.
Mid last year, marketing companies asked the government to ensure KPRL compensates them Ksh7 billion ($84.3 million) for products lost as yield shift in processing of crude oil in the past.
KPRL was, before July 1, 2012, a toll refinery charging marketers a fee for processing crude oil. This raised the issue of whether the government provided adequate protection for KPRL to operate as a merchant refinery importing crude oil for processing, with products being sold to marketers at a profit.