Treasury under fire over Sh7.2bn refinery

Taxpayers lost up to Sh7.2 billion ($9 million) in foregone goodwill benefits when Essar Energy Overseas acquired half of the Kenya Petroleum Refineries Limited shares three years ago.

The Treasury was on Thursday unable to explain how a five-fold variation in the consideration for goodwill paid to the government occured with Essar paying only $2 million (Sh160 million) for the stake instead of an initial valuation of $11 million (Sh880 million).

“Some powerful person in government pushed for Essars’ entry into the refinery at a huge cost to the taxpayer. Who pocketed the $9 million?” Public Accounts Committee chairman Boni Khalwale asked after financial secretary Mutua Kilaka and acting director of investment Beatrice Gathirwa failed to give a list of Essar’s directors.

The 50 per cent stake was sold by Shell, British Petroleum and Chevron for Sh8.3 billion, which were partners with the State in the refinery.

Essar acquired the facility, which was incorporated in 1960, on July 31, 2009.

The refinery is due for a Sh33.6 billion ($420 million) modernisation to be funded by the government and the Indian firm.

They said the company hired lawyers from South Africa and London to facilitate the transaction for which procurement regulations that an international tender be floated appear to have been flouted.

Mr Kilaka said the Treasury would liaise with the Ministry of Energy to provide the documents sought by the PAC including the list of Essar directors and the procurement procedure.

Dr Khalwale ordered that Energy PS Patrick Nyoike and officials involved in the transaction appear before the committee in two weeks.

In 2006, the Cabinet approved plans to modernise the oil refinery with each investor required to contribute Sh3.64 billion but the oil majors were reluctant to provide the capital or have their shares diluted.

The same year, Ms Gathirwa said, the three firms identified Essar, which balked at paying $11 million for the goodwill before the parties settled on $2 million.

“How can we be sure that the $9 million that was to come to the Treasury was not used by individuals to buy out Shell, BP and Chevron using taxpayer’s funds,” asked Mwala MP Daniel Muoki, a member of the committee.

Prime Minister Raila Odinga said on Wednesday that the conversion of KPRL to an oil importer had been postponed to July, the second delay since the year began.

The refinery is to be converted into a merchant, allowing it to import and process crude for clients within and outside Kenya.

Mr Odinga said that the delay arose from legal changes that needed to be enacted before the refinery can arrange funding for the conversion.

Presently, it processes crude on contract for oil marketers in Kenya and in the landlocked countries.

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