Kenya Refineries petitions MPs over proposed $1.2bn upgrade
Kenya’s troubled oil refinery has petitioned parliament to sanction the upgrade of the facility ahead of the proposed exit of Indian conglomerate Essar from the Mombasa-based plant.
The Kenya Petroleum Refineries Ltd (KPRL) said an upgrade of the refinery — estimated to cost at least $1.2 billion — was more feasible than the planned building of a new refinery at Lamu.
In a proposal to the Public Investment Committee (PIC), KPRL said oil discovered in northwestern Kenya, expected to be produced in the next three to four years, can be processed with comparative low investment if upgrading is done.
The politics around the upgrade or closure of the refinery as well as the exit of Essar have set East Africa talking, with the region desperate to have a strategic refinery following oil finds in Kenya and Uganda.
KPRL in a petition dated March 28 this year, projects that building a new refinery would cost more than $5 billion and take at least five years to complete.
KPRL said upgrading the refinery would boost Kenya’s geostrategic importance as the only country with a refinery strategically located at the Mombasa port, which could serve the region’s oil refining needs.
Kenya is the dominant oil supply route to landlocked neighbours Uganda, Rwanda, Burundi and eastern Congo.
“Uganda discovered commercially viable oil in 2006 and since then, construction of the refinery is yet to be started. Oil refining at Uganda will possibly not be realised before 2020. The Lamu refinery may not be in operation either before 2020, when being too optimistic,” said KPRL in the petition signed by its human resource manager Martin Wahome.
Essar said late last year it would sell its 50 per cent stake in the Mombasa plant after its plans for a $1.2 billion upgrade were abandoned on the advice of consultants, who said it was not economically viable. Kenya government owns the remaining 50 per cent.
The upgrade is one of the three options the government has been toying with. The other two are closing down the refinery and converting it into a storage facility to be managed by Kenya Pipeline Company.
“From our computations, using KPRL as a storage capacity is not a feasible option and may not even generate enough revenue to meet its fixed expenses,” said KPRL in the petition.
In order to accord KPRL protection, the Ministry of Energy two years ago introduced a rule requiring that all oil companies involved in importation of petroleum products purchase them from the facility in accordance with market share.
Surplus refining capacity and planned large-scale export oriented refineries in the Middle East and India have however put KPRL at a great disadvantage in terms of economies of scale, freight rates and quality specifications.
