State to convert Mombasa refinery into storage plant

Kenya plans to take over ownership of a mothballed refinery in Changamwe, Mombasa, and convert it into a storage plant, a top official said, to help progress the country's energy ambitions.

The refinery has not been operational since 2013 after plans for a $1.2 billion (Sh121.7 billion) upgrade were abandoned on the advice of consultants who said it was not economically viable.

Energy and Petroleum Cabinet Secretary Charles Keter said the country will pay out Sh500 million ($5 million) owed to the facility's co-owner, India's Essar Energy, to pave the way for the plant's revival.

"Converting the refinery into an oil storage facility ahead of commencement of production of the country's first oil is a milestone for the country," Keter said in a statement.

Oil firms in Kenya have said they could start small-scale production of crude, transported by trucks, in 2017, but full commercial output will depend on building a pipeline, which is still under discussion.

Essar bought a 50 per cent stake in Kenya Petroleum Refineries Ltd in 2009 for $7 million (around Sh560 million then) from a group of oil marketers, including BP, Chevron and Royal Dutch Shell.

Essar had planned to increase the refinery's crude handling capacity to four million tonnes of crude per year (79,000 barrels per day) by 2018, up from 1.6 million now but oil marketers in Kenya, unhappy with the refinery's products and costs, demanded for it to be closed.

Keter said the refinery will be run by the state-owned Kenya Pipeline Company (KPC) once Essar exited.

Oil products from the plant serve customers in Kenya, Uganda, Rwanda, Burundi, Tanzania and parts of the Democratic Republic of Congo.

Kenya and neighbouring Uganda have both made oil finds that have yet to start commercial production, part of a string of energy discoveries along the east coast of Africa.