Kenya refinery seeks $1b to boost oil handling capacity

NAIROBI – kenya’s sole refinery is seeking to raise Ksh99.6b (about $1.2b) to expand its facilities and increase its crude handling capacity to four million tonnes of crude per year by 2018 from 1.6 million now, the refinery’s manager said.
Workers at the Kenya oil refinery in Mombasa. The Kenya government and Essar are looking for funds to revamp the facility. New photo
Workers at the Kenya oil refinery in Mombasa. The Kenya government and Essar are looking for funds to revamp the facility. New photo

NAIROBI – kenya’s sole refinery is seeking to raise Ksh99.6b (about $1.2b) to expand its facilities and increase its crude handling capacity to four million tonnes of crude per year by 2018 from 1.6 million now, the refinery’s manager said.

This would be the most significant overhaul of the 50 year-old refinery – near the Port of Mombasa – owned by the Kenyan government and India’s Essar Energy in a bid to meet growing local and regional demand, the managing director, Brij Mohan Bansal, said.

Bansal said the refinery, the only one in the East African region, plans to raise a portion of the funds through debt, with the balance to be provided by the shareholders as equity.

Bansal said the current demand for refined products in Kenya alone already exceeds four million tonnes per year or 88,000 barrels per day.

When the upgrade is completed, refinery products would be readily absorbed, curbing fuel shortages. The refinery now produces about 35,000 barrels per day, he said.

“Our financial advisor, the Standard Chartered Bank is in the process of conducting a study before a final investment decision is made by the refinery’s board of directors, then financing will commence...So far, everything is on course,” Bansal said.

“We will secure debt financing through a variety of sources, including export credit agencies, development finance institutions and commercial banks.”

Last July, Kenya took steps to transform its refinery from a heavily-subsidised toll refinery operation to improve its efficiency and bring down costs of its products. Toll refineries handle crude on behalf of oil merchants.

Since then the refinery has procured crude for itself, processed it and sold refined products on its own behalf to marketers as well as continuing to process oil belonging to others for a fee.

Oil marketers criticised the refinery for failing to operate at its nameplate capacity, and producing lower quality products. Some have even threatened to boycott buying fuel products from the plant beginning July this year.

But Bansal asked the marketers to respect existing binding agreements, adding that the inefficiencies were due to the bad state of the plant, which the upgrade would address.

“More lower-value fuel oil is produced relative to diesel, gasoline, jet fuel and liquid petroleum gas because of the present refinery configuration. With the upgrade, we will be able to recover higher value products from the heavy stream that now becomes fuel oil,” Bansal said.

The upgrade will include new refinery units, revamping of existing units, a new power plant and a sea water desalination plant to ensure that the refinery is self sufficient in power and water. Additional storage tanks are also in the project plan.

Kenya imports Murban crude from Abu Dhabi and the occasional Arabian heavy and medium crude through an open tender system.

Meanwhile, players in the petroleum and energy sector in the East African region are set to meet in Nairobi to discuss ways of negotiating oil contracts, financing and dispute resolution.

The conference on the theme, “Negotiating, financing and dispute resolution in oil and gas transactions” is aimed at equipping oil and gas professionals in negotiating oil and gas contracts, educating them on the various financing options and empowering them with effective dispute resolution skills.

The two-day meeting to be held on June 6 and 7 at Crowne Plaza Hotel will be attended by government ministers, legal and financial advisers, senior executives and managers in the oil, gas and energy sectors across the East African corridor.

Kenya and Uganda discovered commercially viable deposits of oil and are expected to be among major oil producers once drillings begins.  However, concerns over the need for equity in the sharing of revenues arising from oil production have been mounting.

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