Kenya’s $1.2bn oil refinery plan shelved

Kenya Petroleum Refineries Limited plant in Mombasa. Photo/FILE  Nation Media Group

By JOINT REPORT The EastAfrican

In Summary

• This will further delay plans to boost capacity to meet rising demand for refined oil products in the East African region.
• The dilapidated plant cannot meet the growing demand for refined oil products in Kenya, Uganda, Rwanda and Burundi that rely on the facility for their petroleum product needs.
• The directors want the management to review the project’s internal rate of return, cost of capital and projected cash flow, with the board expecting a detailed report early next year.

Kenya is yet to make a final investment decision on upgrading its Mombasa-based crude oil refinery due to the huge capital outlay required. This will further delay plans to boost capacity to meet rising demand for refined oil products in the East African region.

At a meeting on November 16, the board of directors of Kenya Petroleum Refineries Ltd (KPRL) requested the management to re-examine the economics of the Ksh100 billion ($1.2 billion) face-lift, before approving the decision.

Currently, the dilapidated plant cannot meet the growing demand for refined oil products in Kenya, Uganda, Rwanda and Burundi that rely on the facility for their petroleum product needs.

It is expected that once it is upgraded, the plant will produce environmentally friendly fuel products.

Critical review

“In view of the size of the project and the corresponding high capital expenditure required, the board requested the management to carry out a critical review of the project’s economics and then resubmit for the board’s consideration,” said John Mruttu, KPRL general manager.

Specifically, the directors want the management to review the project’s internal rate of return, cost of capital and projected cash flow, with the board expecting a detailed report early next year.

The delays besetting the project have seen the cost rise six times since 2005, when the modernisation was estimated to require $200 million.

A feasibility report done by KBC Technologies from the UK last year put the cost at $1 billion, with a variance of plus or minus 40 per cent.

The huge variance saw the board appoint another consultant early this year — Engineers India Ltd — which put the cost at $1.2 billion.

READ: Kenya in $1.2bn oil refinery plan

The board failed to adopt the recommendations at their last meeting.

“To reduce the wide variance, Engineers India Ltd was hired to prepare a detailed feasibility study and cost estimate having an accuracy of plus or minus 15 per cent to enable the board of directors to make the final investment decision,” said Patrick Nyoike Energy Permanent Secretary.

The latest twist in the project could push the expected completion time beyond 2017, especially as it means that Standard Chartered Bank, the project financier, will have to wait till the board approves the upgrading for it to start raising funds. Raising the capital could take as much as a year.

In June, the refinery, which processes 1.6 million tonnes of crude a year, signed a $250 million credit line with Standard Chartered Bank to finance crude imports.