The Star (Nairobi)

17 March 2014

Kenya: Senators Plead for KPRL Employees

SENATE's committee on energy has made an outrageous recommendation to the Ministry of Energy and Petroleum to negotiate with oil marketing companies to absorb stranded employees of Kenya Petroleum Refineries.

The capacity of the 79 licensed oil marketers to absorb the KPRL's 300 permanent employees and 700 full time contractors is nonetheless highly doubtful without a profound growth in their businesses.

The nine-member committee in a report tabled on February 27 has endorsed a proposal to convert the beleaguered refinery into an oil storage facility, a position highly favoured by Energy Secretary Davis Chirchir.

This follows the October 3, 2013 announcement by government's equal partner in Mombasa-based facility, India's Essar Energy Overseas, that it will sell off its stake for $5 million(Sh432 million).

Interestingly, the committee wants the management of the proposed oil storage facility to be used as a national reserve for oil products if--if endorsed by the Uhuru administration--to be transferred to Kenya Pipeline Company.

The case for the closure of the East Africa's sole oil refinery has been building since the Energy Regulatory Commission said on April 23, 2013 that its inefficiencies had cost the economy Sh14.56 billion in preceding 28 months.

This comprised of Sh13.05 billion being the difference between the product sourced from KPRL and those directly imported, and a further Sh1.51 billion in demurrage losses.

Chirchir was however quoted a fortnight ago as saying that the two shareholders have reached a compromise $3 million(Sh259 million) pay off to Essar after the latter breached a capital agreement to upgrade the facility.

At that value, Essar would receive 57 per cent less what it cumulatively paid Shell (for 17.1 per cent stake) and the now exited Chevron(15.8 per cent) and BP(17.1 per cent) for the same 50 per cent shareholding in July 2009.

The upgrade of the refinery's technology and capacity would have cost $1.5 billion(Sh129.5 billion) over five-years from 2010, KPRL chief finance officer Stephen Mbui told the Senate's committee on a familiarisation tour on August 7, 2013.

The proposal was to raise 70 per cent of the funds through debt and the remainder 30 per cent equal equity contribution by the two shareholders.

The planned upgrade was however cancelled, Essar said in a statement on October 3 2013, following an advice from its international consultant against KPRL's commercial viability.

The two partners are however yet to conclusively agree on absorption of liabilities, particularly the $250 million (Sh21.59 billion) loan from Standard Chartered Bank secured on June 20, 2012 to transform KPRL from a toll to a merchant refinery.

"All pending loans with financial institutions be paid through the selling of products at the refinery," the committee chaired by Gideon Moi(Baringo) has recommended.

Essar, according to Mbui, invested $37 million(ShSh3.2 billion) in various projects since it took over management of the facility.

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