The Kenya Petroleum Refinery Limited facility. Parliament is investigating how it was sold. Photo/FILE
What you need to know:
Leader of Majority in Parliament Aden Duale said the facility was sold at a throw-away price by senior people in the previous government who benefited directly from the transaction.
When 50 per cent of the refinery was sold in 2008 to EOL, a subsidiary of Essar Oil of India, the government said the consideration was for $5 million or Sh430 million at current exchange rates.
Energy Committee chairman Jamleck Kamau said the separator was sold for $3 million (Sh258 million), the value of the land on which the facility is built.
A fresh row has erupted over the sale of Kenya Petroleum Refineries Limited (KPRL), prompting Parliament to launch investigations into how Essar Overseas Limited acquired shares from three oil majors.
Energy Committee chairman Jamleck Kamau said the separator was sold for $3 million (Sh258 million), the value of the land on which the facility is built.
“If anything was paid it is only $3 million yet the equipment alone is worth way above the amount paid,” Mr Kamau, the Kigumo MP, said on behalf of the committee, which is assessing the proposed closure of the refinery.
Leader of Majority in Parliament Aden Duale said the facility was sold at a throw-away price by senior people in the previous government who benefited directly from the transaction.
“I have credible information that the land itself, measuring 300 acres in Mombasa is worth over $3 million. The equipment is worth billions,” Mr Duale, the Garissa Town MP, said. The land is worth Sh6 billion at prevailing market prices.
When 50 per cent of the refinery was sold in 2008 to EOL, a subsidiary of Essar Oil of India, the government said the consideration was for $5 million or Sh430 million at current exchange rates.
“The committee has launched a probe on the matter. We want to understand the agreement between Essar Energy and government. The agreement is in the custody of the committee,” Mr Kamau told MPs. Mr Duale demanded that the committee provide ownership deeds for the land and equipment to help establish whether the deal was above board and whether the price matched the valuation of KPRL.
“I also want the committee to state whether the deal for sale of KPRL benefited senior people in the last government. I want to appear before the Energy committee and raise issues on the deal,” Mr Duale said.
Essar entered into an agreement to acquire 50 per cent of KPRL in 2008 from Shell Petroleum Company Limited, Chevron Global Energy and BP Africa Limited leaving the government with the other half. The acquisition was completed in July 2009.
The refinery in Mombasa is the only one in Eastern Africa. It produces LPG, gasoline, diesel, kerosene and fuel oil.
It was set for an upgrade at an estimated cost of $450 million (Sh40 billion) before plans to close it for ostensibly being moribund were mooted. Essar has said it wants to raise $1.2 billion for a substantial upgrade.
KPRL management claimed last month that the proposed closure was part of a scheme by some oil industry merchants to acquire the assets on the cheap.
Oil marketers have since January been reluctantly taking the statutory 40 per cent of their crude imports for refining through the cleaner, arguing that the end product was more expensive than when it is imported directly.
The marketers have for years been blaming the refineries technology for escalation in fuel prices saying it was costly to process white oils at Mombasa.
Parliament questioned the motive of the stance by oil companies with Mr Kamau saying it was intended to clog the refinery through refusal to remove processed products.
The government has since directed oil marketing companies to lift their stocks in line with the requirements failure to which their licences would be revoked.
Mr Kamau said the government had put brakes on plans to close the refinery and extended by two years the period for the planned upgrade.
“The government is encouraging investment in the refinery in order to increase the capacity and quality of the products that is processed at the firm,” he said.
The ministry has written to Essar calling for a shareholders meeting to agree on the upgrade programme at KPRL as the government takes measures to ensure the refinery meets its statutory mandate.
Nairobi County MP Rachael Shebesh said the Essar contract should be terminated because the company was not performing.
Kenya Private Sector Alliance (Kepsa), however, says products from the refinery are Sh8 more expensive than imported finished products because of ageing infrastructure and years of under investment.
The lobby has suggested that if it is not economically viable to upgrade the Changamwe-based plant it should be converted to a storage facility, creating a buffer and helping the economy save on demurrage costs.
This view is supported by the Energy Regulatory Commission.
“Monthly savings on production of 100,000 cubic meters at Sh10 per litre translates to Sh1 billion per month. Savings on vessels freight costs at five US cents translates to Sh90 million per month,” Kepsa said in a presentation to the committee last month.
Fuel distributors have also complained about poor quality products from the 50-year-old refinery and want it closed so they can buy cheaper and better imports.
Distributors say the plant is operating below its 35,000 barrels per day capacity and some have already threatened to boycott.
