By Kennedy Senelwa Special Correspondent
In Summary
- 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.
- 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.
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.
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