14 July 2008
Nairobi — Kenya's Energy minister has moved to assure Indian petroleum sector industrialists that it is still keen on investments from the sub-continent, signing off a deal between Bharat Petroleum Corporation Ltd (BPCL) and the Kenya Pipeline Company Ltd for setting up an LPG plant in Nairobi.
Analysts say the signing of the memorandum of understanding, which saw Energy Minister Kiraitu Murungi travel to Mumbai, was meant to assuage the perception that the government was paying lukewarm attention to Indian investor interests in the sector, especially following the difficulties faced by Essar Oil to buy out a 50 per cent stake in Kenya Petroleum Refineries Ltd (KPRL).
While in India, Mr Murungi assured oil executives that the Kenyan energy sector had enormous investment opportunities which Indian companies and investors could take advantage of it.
The country, he added, was looking for technical tie-ups that could help Kenya oil handling storage and transport capacity.
Mr Murungi also said the country also welcomed Indian companies to explore for oil in the country, which still had some unexplored blocks.
"Crude oil is getting costlier and the Kenya government invites participation from Indian companies in its energy sector to come and explore," the minister told a group of Indian oil executives.
Mr Murungi's pitch, analysts say, was probably informed by the need to give reassurance to the investors given the perception that the government was favouring investors linked to the Libyan government over Essar Energy Overseas, a subsidiary of Essar Oil which earlier in the year had entered into an agreement to acquire 50 per cent of KPRL.
Under the agreement, Essar was to acquire the stake from existing shareholders - Shell Petroleum Company, Chevron Global Energy and BP Africa - subject to government approvals.
The approvals were necessary because the government holds the remaining 50 per cent of KPRL, as well as pre-emptive rights.
Essar offered $10 million to buy the stakes held by the multinationals, and also committed to invest more money to upgrade the refinery, whose total overhaul costs are in the range of $400 million.
But the Kenyan government seems keen to sell the stake to Libya Oil Holdings Ltd - a company associated with the Libyan government and registered in Mauritius - for the same price as offered by Essar.
The sale to the Libyans was supposedly part of a deal signed between Nairobi and Tripoli to grant Libya "a most favoured country" status, which, among other things, sought the "promotion, guarantee and protection" of Libyan investment in Kenya.
Last week, in what appears to be mixed signals, Mr Murungi told Indian executives that Essar was still in the running to buy the stake, strengthening a perception gaining currency that the company would be accommodated in the Libyan arrangement.
In the circumstances, analysts say, Mr Murungi and his delegation were keen to laud the LPG deal between Kenya Pipeline and BPCL as a triumph of partnership between Kenyan and Indian oil industry players.
The Nairobi plant, developed in the partnership, will have a capacity of 2,000 tonnes, and will help ease Kenya's sporadic gas shortages.
The initial investment in the project is expected to be around $15 million and will be funded through a 70:30 debt equity ratio. The total cost of the LPG project is $60 million.
According to Mr Murungi, Kenya is working to shift the pattern of energy consumption to electricity and petroleum in order to protect the environment and to provide energy forms necessary for economic growth. Petroleum and electricity currently account for only 21 per cent and 9 per cent, respectively, he said.
"LPG is a clean and environment friendly fuel we want to invest in," said the minister.
Other than the two projects, involvement by Indian power companies include Petroleum India International's work in the construction of the second Mombasa-Nairobi pipeline, a project worth $110 million, which is being done by China Petroleum Pipeline Engineering Corporation.
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