2 May 2013

Kenya: Refinery Seeks Sh99 Billion to Double Oil Handling Capacity

Kenya's sole refinery is seeking to raise Sh99.6 billion ($1.2 billion) to expand its facilities and increase its crude handling capacity to 4 million tonnes of crude per year by 2018 from 1.6 million now, the refinery's manager said.

This would be the most significant overhaul of the 50 year-old refinery owned by the Kenyan government and India's Essar Energy, in a bid to meet growing local and regional demand, managing director, Brij Mohan Bansal, said.

Bansal said the refinery, the only one in the east African region, plans to raise a portion of the funds through debt, with the balance to be provided by the shareholders as equity.

Bansal said in an interview at the refinery on the shores of the Indian Ocean - near the port of Mombasa the trade gateway to the region - that the current demand for refined products in Kenya alone already exceeds 4 million tonnes per year or 88,000 barrels per day.

When the upgrade is complete, refinery products will be readily absorbed, curbing fuel shortages. The refinery now produces an equivalent of 35,000 barrels per day, he said.

"Our financial advisor, the Standard Chartered bank is in the process of conducting a study before a final investment decision is made by the refinery's board of directors, then financing will commence; and so far everything is on course," Bansal said.

"We will secure debt financing through a variety of sources including export credit agencies, development finance institutions and commercial banks."

Last July, Kenya took steps to transform its refinery from a heavily-subsidised toll refinery operation to improve its efficiency and bring down costs of its products. Toll refineries handle crude on behalf of oil merchants.

Since then the refinery has procured crude for itself, processed it and sold refined products on its own behalf to marketers as well as continuing to process oil belonging to others for a fee.

Oil marketers criticised the refinery for failing to operate at its nameplate capacity, and producing lower quality products, and some have even threatened to boycott buying fuel products from the plant beginning July this year.

But Bansal asked the marketers to respect existing binding agreements, and added that the inefficiencies were due to the bad state of the plant, which the upgrade would address.

"More lower-value fuel oil is produced relative to diesel, gasoline, jet fuel and liquid petroleum gas, because of the present refinery configuration. With the upgrade, we will be able to recover higher value products from the heavy stream that now becomes fuel oil," Bansal said.

The upgrade will include new refinery units, revamping of existing units, a new power plant and a sea water desalination plant to ensure that the refinery is self sufficient in power and water. Additional storage tanks are also in the project plan.

Kenya imports Murban crude from Abu Dhabi and the occasional Arabian heavy and medium crude through an open tender system (OTS).

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