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East Africa’s only refinery facing hard times

A section of the Mombasa refinery

A section of the Mombasa refinery

East Africa’s lone refinery in Mombasa faces an uncertain future following an announcement by Essar Energy,  a 50 % shareholder with the government of Kenya, that it had withdrawn from the partnership, and was planning to sell its shares.

Essar Energy, an Indian firm, bought into the refinery four years ago, at a cost of $7 million, but has indicated that it will accept $5 million now.

According to a statement on the company’s website, the move follows disappointing results from a series of studies into the technical, economical and funding elements of an upgrade of the refinery.

“The upgrade is not economically viable in the current refining environment,” read the statement.

Essar had planned to inject up to $ 450 million in the refinery.

Essar did not do enough

But Kenya’s Energy Cabinet Secretary, Davis Chirchir, faulted Essar for not playing their role as partners and presenting a feasibility study with a low internal rate of return.

“Even though the oil refinery is not processing any crude at the moment and it has had its issues, Essar Energy was not able to do their part as our technological partners,” he told Oil in Uganda by phone.

He maintained that the refinery would continue operations.

“Government will make informed decisions and get a strategic position in which to move forward,” he said.

Kenya’s loss

Essar Energy has fully integrated oil & gas operations with strong international presence across the hydrocarbon value chain, from exploration and production to retail. It owns and operates India’s second largest refinery.

Some industry experts predict its withdrawal from Kenya will further jeopardise the future of an already troubled project.

“Essar’s experience would have come in handy during the upgrading process of the refinery,” notes Mwendia Nyanga, a Kenyan industry consultant.

“Kenya will need a technical partner who has dealt in refineries before and can match up with Essar Energy,” he added.

Meanwhile, Kenya, buoyed by recent oil discoveries in the Turkana area, is continuing with plans to construct another refinery in Lamu, where a $ 5.5 billion port will be built to accommodate its expected petroleum exports and those from South Sudan and Uganda.

Report by Beatrice Ongode