Kenya and Essar to iron out oil refinery sale stalemate


Taxpayers could be forced to shoulder accumulated liabilities incurred by grounded Kenya Petroleum Refineries Ltd if India’s Essar Energy has its way in today’s crucial meeting with the government.

The two equal partners in the Mombasa-based facility are meeting for the second time to agree on who between them will shoulder liabilities when Essar exits the refinery after a four year management deal. The meeting follows another one held on November 11.

Among the liabilities is a Sh21.62 billion($250 million) loan from Standard Chartered Bank secured on June 20, 2012 to transform KPRL from a toll to a merchant refinery. Unconfirmed reports suggest that Essar has demanded that the government clears all outstanding arrears including unpaid workers’ dues.

The India subsidiary is understood to be pushing for the demands arguing that it will receive Sh173.36 million($2 million) less when it finally relinquishes its 50 per cent shareholding than it paid for.

It paid oil multinationals Shell (whose 80 per cent assets have since been acquired by Vitol and Helios trading as Vivo Energy) and Chevron and BP Sh606.76 million ($7 million) for its stake in the facility. It has nonetheless offered to sell to the government for Sh432.5 million ($5 million).

The position of the government could not be immediately established as both cabinet secretary for Energy and Petroleum Davis Chirchir and his Principal Secretary Joseph Njoroge did not respond to our enquiries.

Chirchir confirmed last Thursday however that the meeting is scheduled for today. He pinpointed failure by Essar to upgrade the facility as earlier planned at a cost of Sh104 billion($1.2 billion) as one of the “many issues that we are yet to agree on.”


“We are having a formal board meeting on November 26 where we shall discuss everything that is pending,” he said in a telephone interview. “There are many issues like the upgrade that never happened.”

The upgrade of the 53-year old refinery’s technology and capacity refinery was due in 2010. But Essar said, on October 3 this year, that it abandoned it after an advice from its international consultant against its commercial viability.

Essar chief executive Brij Bansal said in a telephone interview on Thursday that legal teams from both parties were still working on exit details. When asked about liabilities, Bansal said he will only comment when a deal is reached through the legal teams.

“It’s a legal process now beyond management and I cannot comment until the process is complete,” he said. “We agreed not to comment until the deal is done.”

By CONSTANT MUNDA, The Star

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