Essar Energy Ltd. (ESSR), co-owner of Kenya Petroleum Refineries Ltd., said it will sell its 50 percent stake in the country’s only oil refinery to the government after studies showed an upgrade is economically unviable.
Essar is exercising a $5 million option to sell under the joint-venture shareholders’ agreement, leaving the East African government with full ownership, the India-based company said in an e-mailed statement today.
KPRL said in April it’s considering raising $1 billion of debt and equity for a planned upgrade of the facility to boost processing capacity to 4 million metric tons a year by 2019 from 1.6 million tons now and improve efficiency.
Outdated equipment and lack of investment in maintenance means it costs at least 6 percent more to refine fuel at the 50-year KPRL than to import it, according to the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 percent stake in the company in July 2009 for $7 million from BP Plc (BP/), Chevron Corp. (CVX) and Royal Dutch Shell Plc (RDSA), 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 refined imports, violating a Kenyan law requiring them to purchase about 40 percent of the 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.
The refinery suspended operations Sept. 4 after falling sales dragged the company into a loss, Oscar Ngaiza, KPRL’s manager of large projects, said today by phone from Nairobi.
Manoah Esipisu, spokesman in the presidency, didn’t answer his mobile phone when called for comment.