NAIROBI, KENYA-Kenya has finally decided to pull out of its refinery deal with Essar Energy in what will define the official closure of the trouble-ridden Mombasa facility.
This in effect means that the country will operate without a refinery which is currently the only one in the East African region. It will also officially make Kenya a net importer of refined oil.
The withdrawal was announced by Kenya’s Energy and Petroleum Cabinet Secretary Davis Chirchir.
In an interview with a local radio station, Chirchir confirmed that the government had indeed started the process of official severing links with Essar and converting the Kipevu refinery into an oil storage facility. The two have been joint owners of the Kenya Petroleum Refineries Limited (KPRL).
However the government and Essar have found it difficult to raise about $1 billion needed to revamp the 50 year old refinery. Not long ago, Essar offered to sell its 50% share back to the government.
Oil industry players have in the recent times called on the government to close down the facility claiming that it is not tenable. They say the cost of refining oil at the facility is almost triple that of importing fully refined products.
According to industry sources, the closure is expected to substantially reduce the cost of oil in the country and by extension, the region.
The energy industry regulator in April recommended that KPRL, which is the only oil refinery in East Africa, be used to handle imported refined petroleum products, given that it was proving to be more costly to refine products at the facility.
Kenya’s Energy Regulatory Authority (ERC) is also on record as recommending the closure of the facility.
In severing links with Essar, the government through the national Treasury will need to take up the 50% stake currently controlled by the Indian conglomerate.