Kenya settles on Essar as refinery partner

March 25, 2009

, NAIROBI, Kenya, Mar 25 – The government has finally consented to co-own the Kenya Petroleum Refinery Limited with Essar Oil and Gas Limited from India.

Energy Minister Kiraitu Murungi said on Wednesday that modalities on the 50-50 partnership were now being worked out.

“The government has decided, after consideration of all factors, that the original arrangement with the private oil companies should proceed,” Mr Murungi said.

The Indian oil giant had won the bid to purchase the refinery’s 50 percent stake from Shell Petroleum Company Ltd (17.1 percent), Chevron Global Energy Inc (15.8 percent) and BP Africa Ltd (58/7. BP and Shell Petroleum Company (each with 17.1 per cent) and Chevron Africa Oil Holdings Ltd (15.8 per cent)

The government which holds pre-emptive rights over the refinery by virtue of its shareholding had considered buying the other 50 percent stake.

“For the last one year, Treasury was considering whether the Essar partnership was the best way to go, or whether it should buy the shares itself as government (and own) 100 percent of the refinery or whether its should consider a competitive offer from Libya,” Mr Murungi  said.

Essar beat four other contenders for the 50 percent stake but the government came up with a new arrangement that would offer the stake to Tamoil, a Libyan state firm that refused to participate in the open tendering process.

“The new Finance Minister (Uhuru Kenyatta) has decided that the old arrangement goes on and negotiations are now going on with Essar,” said the Energy Minister.

Meanwhile Mr Murungi said his ministry had requested for an allocation of Sh10 billion in the next financial year for the exploration of geothermal energy in the country.

While some parties have argued that geothermal exploitation may be too expensive for the country, the Minister argues that not exploiting this opportunity may be more expensive.

“We are lucky international oil prices have gone down because of factors beyond our control, but if they do come up we will see a situation where companies are folding up because of the increased cost of electricity and that will be more expensive than the exploration bid,” Mr Murungi said.

The country only taps 150MW of geothermal power for the national grid against a potential of 7000MW.

The Minister was responding to public concerns that the government is not doing enough to reduce the cost of electricity in the country.

“Let people stop asking the government all the time what it is doing about the issue of high electricity costs but also invest more in the sector. We cannot develop this country with timid, skeptical investors,” he said.

He noted that increased new investment in the sector may be the best solution to lowering the high cost of electricity in the country. 

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