StanChart picked as financial adviser in refinery upgrade
Engineers at work on one section of the Kenya Petroleum Refineries Limited. The plant is to be upgraded at a cost of Sh65 billion. Photo/FILE
Shareholders of the Kenya Petroleum Refineries Ltd (KPRL) have appointed Standard Chartered Plc to be the firm’s financial transaction adviser for its Sh65 billion planned upgrade.
This follows a resolution to revamp Changamwe refinery by the owners — India’s Essar Oil and Gas and the Government — during a meeting last week.
Energy permanent secretary Patrick Nyoike said Standard Chartered would raise 75 per cent of the debt while shareholders would top up the balance.
The upgrade will enable the refinery process all types of crude oil, including Uganda’s waxy type, and yield higher value white products.
The move follows adoption of proposals by project consultants KBC Technologies that the upgrade be carried out in two phases, the first taking four years and the second three years.
“The final report of KBC Technologies recommended upgrading be done at a cost of $806.9 million (about Sh65 billion) with phase one having a time line of 2011 to 2015. Phase two is to be undertaken from 2015 to 2017,” Mr Nyoike said.
KPRL has a capacity of four million metric tonnes per year, at the current 40 per cent utilisation factor based on its current heavy diet of Murban crude oil.
It processes 1.6 million tonnes of crude oil or 40 per cent of the country’s fuel needs— at a daily rate of 32, 000 barrels of crude per day.
The upgrade will add secondary units that could double the daily production rate to 80,000.
Oil companies estimate that losses of up to $30 (about Sh2, 400) per tonne of processed crude are incurred due to the inefficiencies, making imports of refined products cheaper.
“We must decide on the upgrade by mid 2011. KPRL is bleeding the economy through delayed investments. We need Essar to help modernise, “ Mr Nyoike says.
In July 2009, Essar acquired 51 per cent stake in the refinery in 2009 after Shell, BP and Chevron put up their combined shareholding under a block sale.
Essar was meant to bring on board management, technical skills and finances to raise the refinery’s production to about 172,400 barrels a day and boost efficiency at the Mombasa-based firm.
These targets are yet to be met and executives at the firm lay blame on the discovery of the Ugandan oil, which forced the movers of the upgrade back to the drawing board.
KPRL said it was changing the initial upgrade plan to allow the refinery to process waxy crude rather than the non-wax variety that is sourced from the Middle East.
The ageing facility enjoys statutory protection through a law that requires oil firms to process 70 per cent of their products (or 1.6 million) tonnes there and import the balance as refined products.
On completion of the upgrade, the plant will be turned to a merchant refinery that buys crude oil, undertakes processing and sells refined products at a profit to the Kenyan market and export.
The upgrade is also more urgent as the facility races to tap Uganda’s oil, which threatens to disrupt Kenya’s earnings.
Landlocked Uganda relies heavily on Kenya to import a wide range of goods, including refined oil products, but its discovery of 2.5 billion barrels of crude oil deposits— and that government’s intentions to refine its own oil is set to reverse the direction of trade.
Biggest losers
The government, oil marketers, transporters, the Kenya Pipeline Corporation (KPC) and KPRL are set to be the biggest losers amid plans by Kampala to have its own refinery.
The landlocked economy accounts for nearly 35 per cent of the fuel that is imported and refined locally.
Annually, about 115,000 tonnes of petroleum products are transported by road to Uganda, creating business opportunities for transporters.
KPC is estimated to pump 80 per cent or 715,000 tonnes of petroleum products consumed in Uganda annually.
