Kenya may shelve refinery plans

May 10, 2011

, NAIROBI, Kenya, May 10 – The government has admitted that the much awaited refurbishment of the Kenya Petroleum Refineries Limited (KPRL) might not take place after all.

Plans to upgrade the aging refinery have been in the works for more than five years as one way of saving the country the colossal amounts of money that is spent to import refined petroleum products into the country. Currently Kenya’s oil import bill has risen to Sh224 billion making it the biggest import item.

Energy Minister Kiraitu Murungi however said with the discovery of oil reserves estimated at two billion barrels in Uganda and subsequent announcement of the setting up of a modern refinery there, the government is rethinking this plan.
“The Kenyan refinery (to be) expanded and modernised so that it could serve Uganda, Rwanda, Burundi and the Southern Sudan market; but with a new refinery in Uganda the sense of modernising our refinery is put into question,” he admitted.

Built in 1974, the refinery was designed to process about four million Metric Tonnes (MT) of heavy crude oil per year but with increased economic activities not only in Kenya but the East African region – which heavily relies on the facility for its petroleum products – this capacity has become inadequate.

In 2007, the Cabinet approved the rehabilitation of the 37-year-old refinery at a cost of $322 million (which was approximately Sh20 billion at the time) in a project that was due for completion in December 2009.
The previous shareholders Shell Petroleum, Chevron Global Energy and Beyond Petroleum that together held a 50 percent stake, with the government holding the remainder, were not interested in financing the upgrade plans and opted to sell shares to Essar Oil Limited of India.
When Essar came on board, it appointed its own consultant to revise the entire modernisation programme since it is expected to participate in revamping the plant. 

The official report has not yet been released but the projected cost is said to have escalated to $1.05 billion (Sh88.2 billion), fuelling debate about whether it will make economic sense for Kenya to inject that much money in the upgrade and not utilise it fully after Uganda begins its commercial production.

In the meantime, it looks like the stakeholders and motorists in general will have to live with the inconveniences that are brought about by breakdowns and technological inefficiencies of the refinery which have been blamed for the perennial fuel shortages that are witnessed in the country.

This weakness makes it relatively cheaper to import finished products from the source as opposed to processing crude oil at KPRL which further drives up the import bill.

Coupled with the occasional power outages which have contributed to the production constraint, this inadequacy is said to account for about Sh2 of the cost of a litre of petroleum products.

Mr Murungi has partly blamed this bottleneck on the Treasury’s failure to allocate any funds to the petroleum sub-sector forcing it to operate on a ‘hands-to-mouth’ basis.

It is clear however that the government needs to implement a more comprehensive action to rid the country of the fuel crisis once and for all.

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