Indian petroleum giant, Essar Group, has concluded its bid to acquire a 50 per cent stake in Kenya Petroleum Refineries Ltd (KPRL).

Essar Group made the announcement on Friday after a year of negotiations to buy out three oil majors that owned the facility with the Government.

Following conclusion of the deal, Essar and the Government will invest $400 million (Sh22 billion) in the next three years to upgrade the refinery’s production capacity to one million barrels a day.

The refinery has a capacity of about 72,000 barrels a day.

"The conclusion of the deal fits our strategy in expanding to Africa’s petroleum industry and positions our company as a key player in this region which has immense oil reserves," said Mr Prashant Ruia, the promoter-director of Essar Group.

"Our model in India is to be a refinery with retail and market distribution. We have 1,500 gas stations in India, which we operate on a franchise basis. we will see how we can bring that model to Kenya," he said.

Essar paid $10 million (Sh760 million) to acquire part of KPRL after a competitive bid steered by Wood McKenzie Consultants of the UK, edging out Oil Libya and Reliance Industries.

Pre-emptive rights

The company also paid an additional $2 million to the Government to waive its pre-emptive rights. The rights allow an existing shareholder to purchase any additional shares if a chance arose before any other third parties are considered.

Sourcing for an investor began last year after studies showed the 67-year-old refinery needed to be modernised to meet growing demand for petroleum products in the region.

Previous shareholders including Chevron, Shell and BP turned down the offer to increase their shareholding and raise money needed for the exercise saying the planned upgrade had failed to meet their investment criteria. "We are happy to conclude the deal and will immediately embark on upgrading the facility," said Prime Minister Raila Odinga.

The Prime Minister’s office coordinated the process of sourcing for a new investor under the PM’s Round Table initiative. Once upgraded, the refinery will also increase current production of liquefied petroleum gas, from the 30,000 tonnes to 120,000 tonnes a year.

The deal comes barely weeks after Uganda reported massive oil reserves find approximated at over 500 million barrels.

Essar appoints CEO to oversee refinery upgrade





http://www.businessdailyafrica.com/image/view/-/650856/highRes/98560/-/maxw/600/-/y0a73pz/-/Mombasa-Refinery.jpg Engineers repair a section of the Kenya Petroleum Refineries Limited. The refinery is meant for upgrade at a cost of $400 million (about Sh32 billion) to enable it produce more white oil products such as cooking gas, jet fuel and petrol as opposed to its current state where it does more fuel oil, making it less efficient and profitable.
By Zeddy Ssambu (email the author (http://javascript%3cb%3e%3c/b%3E:void%280%29;))

Posted Tuesday, September 1 2009 at 00:00

Essar Oil and Gas has appointed a new chief executive for the Kenya Petroleum Oil Refineries Limited (KPRL), putting fresh urgency to the delayed upgrade of Kenya’s sole refinery.

Business Daily has established that the Indian- based oil giant has tapped Mr Raj Varma from its headquarters in Mumbai to help in the refinery’s turnaround, just a month after Essar completed the purchase of a 50 per cent stake in KPRL from three oil majors: Shell Petroleum Company, Beyond petroleum and Chevron Global Energy.

He takes over from Mr John Mruttu who becomes the chief operating officer after a new shareholder agreement that gave the Indian firm the position of CEO and chief finance officer.

The change in leadership is the clearest signal that Essar is set to stamp its authority in the management of the refinery, which was under the control of the Kenyan government that holds the remaining stake, and executives at the firm reckon it would give urgency to the upgrade plan.

The refinery is meant for upgrade at a cost of $400 million (about Sh32 billion) to enable it produce more white oil products such as cooking gas, jet fuel and petrol as opposed to its current state where it does more fuel oil, making it less efficient and profitable.

Already, the government has so far set aside Sh1.6 billion to help fund the upgrade with the balance expected to come from Essar Oil and commercial lenders.

“The upgrade project is now moving, with a review of the (dated) design premises.

Priorities will crystallise as Essar becomes more familiar,” said a senior executive at the firm who requested not to be named.

Last Friday, the board, at their first meeting since the entry of Essar, approved a number of projects linked to the upgrade.

Besides the upgrade, the board approved the construction of a 24 megawatt power plant to cut its reliance on Kenya Power and Lighting Company, a gas loading facility and injection of Sh160 million in fresh equity for the implementation of smaller projects.

It also approved the hiring of consultants to undertake studies and recommend the best configuration of the refinery and review both costs and viability of the project.

Mr Varma has vast experience in the Indian energy market that spans over 50 years and his posting would help the Indian giant increase its presence in the regional oil market.

On July 30, Essar announced that it would enter Kenya’s downstream petroleum market by acquiring assets belonging to the troubled Triton Petroleum Company that was placed under receivership last December.

Essar Energy is a fully integrated oil & gas company of international scale with strong presence across the hydrocarbon supply chain — from exploration & production to oil retail.

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Oil refinery seeks to upgrade plant

http://www.nation.co.ke/image/view/-/665230/highRes/104553/-/maxw/600/-/13fvacr/-/KPRL.jpg The Kenya Petroleum Refinery in Changamwe, Mombasa. Photo/FILE
By MWAKERA MWAJEFAPosted Tuesday, September 29 2009 at 15:51

Kenya Petroleum Refineries Limited (KPRL) is studying various proposals from oil industry experts on how to upgrade its facilities to produce a targeted four million tonnes per year.

Currently, the plant produces 1.6 million tonnes which fall short of the local consumption of 3.2 million yearly, says KPRL general manager John Mruttu.

“Our modernisation programme is estimated to cost Sh31.2 billion ($400 million) and this is a colossal sum that will need proper planning before investment,” he said in a telephone interview on Tuesday.

Mr Mruttu said that if the project takes off, it would enable the country to not only satisfy its own needs, but also export petroleum products to neighbouring countries.

“To counter the pressures created by new refining capacity in the Arabian Gulf and Indian subcontinent, we must streamline our oil industries in Africa to meet international markets,” he said.

Operations of the refinery are normally affected by two challenges; inadequate water supplies and periodic power outages.

This, according to KPRL human resources manager Martin Wahome, is a major “headache” facing the oil industry’s refining capacity on yearly basis.

“Although we are 100 per cent compliant on products’ standards, water and power interruptions are causing us sleepless nights,” he said.

Unheard of

The plant requires two million litres of water daily for running the boilers and cooling other equipment.

Compared to its counterpart in Cote d’Ivoire, process division manager Raphael Souduga says their refinery has its own water supplies and power for operations.

“Lack of water or power is unheard of in Cote d’Ivoire because our plant does not depend on other suppliers for water or power,” he said.
Speaking during the second day of African Refiners Association workshop in Mombasa, Mr Souduga said his country produces more petroleum products than it requires for local consumption.

“We produce 4 million tonnes per year where 1.5 million is used locally and the rest sold to Benin, Togo, Sierra Leone, Burkina Faso and Nigeria where we get our crude oil from,” he said.

To achieve reasonable success, Mr Souduga said their plant maintenance is done on a five-year-basis by contractors from Europe and elsewhere depending on the technology required at the time.

After several failed attempts, renovation plans for the Mombasa-based Kenyahttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://www.standardmedia.co.ke/mag/InsidePage.php?id=1144030391&cid=457&#) Petroleum Refineries Ltd (KPRL) look more likely, as the drive to position the facility to become the region’s top oil refiner gains currency.
Simmering boardroom wars between the Government and the refinery’s former co-owners — three local oil multinationals — had previously bogged down initiatives to upgrade the facility.
However, change of ownership after the oil firms sold off their 50 per cent stake to Essar Group of India has seen renewed interest to modernise the facility. The latest proposal estimated to cost Sh30 billion could see massive reduction in fuel prices if negotiations to upgrade the facilities by US-based energy-solutions company, Afton Chemical, succeed.
Afton is set to modernise some operational aspects of the 67-year-old refinery and introduce new technology that one of its engineers says will help it achieve operational efficiency.
"This means Kenya will get 20 per cent more refined oil from the same amount of crude it imports annually. Consumers will greatly benefit if oil marketers agree to share with them the cost benefits given that the price of petrol could go down by the same margin," reckons Dr Allen Aradi, Senior Adviser on Fuels, Research and Development at Afton Chemical.
But even as the new owners push through the ambitious project that is informed by the need to position the country as a gateway to the unexploited oil riches of Uganda and Southern Sudan, it is not clear whether this time round its partner — the Government — will be willing to chip in, owing to the tight budgetary position originating from devastating drought and slowing economy, and has since shifted its investment priorities to social issues.
Shell, BP and Chevron (Caltex), who resisted the upgrade, are now out of the picture after offloading their stake to Essar Group.
According to KPRL insiders, the issue of the refinery’s fate has been on the table for a number of years and even prompted a study on its financial viability that was carried out by KBC Process Technology of Britain. Upon examining the various options available for the refinery, including turning it into a storage terminal or closing it down, the study concluded that renovation was the most commercially sound option. The results of the study were released in May 2004.
But despite the conclusions of these two studies and the standing of the law, the multinationals have remained unconvinced on the financial sense of the renovations, instead preferring to explore other options, including turning the refinery into an imports storage terminal for refined oil products.
But this time round, the new owners are not backing down from the modernisation, which they see as more rewarding and the reason for taking up a stake in the old refinery.
But why now? First, global refining capacity is way too low, even in developed countries like the US. Because oil priceshttp://images.intellitxt.com/ast/adTypes/mag-glass_10x10.gif (http://www.standardmedia.co.ke/mag/InsidePage.php?id=1144030391&cid=457&#) are still largely a function of supply and demand, sluggish growth in oil production capacity has fallen far behind global demand, especially in the developing world, led by China and India. And new opportunities in Uganda, Southern Sudan and the possibilities of Kenya striking the ‘black gold’ makes it all a worthwhile venture.
Cut in costs
Under the current upgrade plan, modernisation will also see redesigning of operational aspects and maintenance of furnace and heat exchangers, which have a large bearing on the efficiency of the refining process.
Use of the old model has seen the refinery gobble up huge amounts of energy.
Currently, KPRL is the second largest consumer of electricity in Kenya after Bamburi Cement. It pays between Sh20 million and Sh30 million monthly to the Kenya Power and Lighting Company (KPLC).
KPRL’s upgrade also involves equipping the facility with its own 24 megawatts power production unit and eliminate the refinery’s reliance on KPLC. It will pass over the excess power to the national grid to supplement its income.
Another key technological change Afton is proposing is the use of Methylcyclopentadienyl Manganese Tricarbonyl (MMT) — a fuel additive that increases octane levels (ability to resist engine knock) and helps refiners alter fuel composition to meet stringent environmental and fuel quality specifications that are crucial to reducing emissions and energy consumption.
More than 150 refiners in 45 countries in Europe, Africa, Asia, Central and South America, as well as the United States and Canada, have adopted the use of MMT to produce high quality fuels.
KPRL has remained uncharacteristically quiet over the deal.
A few weeks ago, its Managing Director John Mruttu promised to talk to FJ, but later changed his mind. Efforts to reach him have been futile as his phone went unanswered.
Aradi declined to state how much the process would cost, but Essar Group and the Government are expected to invest $400 million (Sh30 billion) in the next three years to upgrade the refinery’s production capacity from 72,000 barrels to one million a day.
Once upgraded, the refinery will increase current production of liquefied petroleum gas from 30,000 tonnes to 120,000 a year.
Aradi confirmed Afton and KPRL were close to a deal and the two had engaged their lawyers.
"I don’t want to say how much it will cost or go into any other specifics because this might unsettle negotiations between our lawyers," explained Aradi.
However, the strongest hint that a deal is in the offing came from industry insiders. National Oil Corporation of Kenya Managing Director Mwendia Nyaga told FJ the refinery’s management informed them during a roundtable meeting earlier in the year that it was carrying out a feasibility study on effects of a modernisation project. "They told us they were commissioning a new feasibility study as findings of the one that was done in 2003/04 had become obsolete," said Mwendia.
Rising demand
The planned upgrade of the refinery has been on the cards for more than a decade and at some point, it was apparent that Libya’s oil giant, Tamoil Africa, had been given the go-ahead to conduct the upgrading of the region’s largest refinery. The upgrade was to improve infrastructure, efficiency and help the refinery meet rising demand from Kenya’s landlocked neighbours. About 85 per cent (714,000 tonnes) of Uganda’s annual petrol and diesel needs pass through Kenya.
Local, foreign banks and other financial institutions had signalled their readiness to fund up to 70 per cent of the project, estimated to cost around $320 million (Sh24 billion) five years ago. The rest of the funding was to be raised through equity.
But Tamoil backed out of the deal after Essar Group edged it out in the battle to acquire majority stake in the refinery.
Essar paid $10 million (Sh750 million) to acquire part of KPRL after a competitive bidding steered by Wood McKenzie Consultants of the UK to edge out Oil Libya and Reliance Industries.
The Indians also paid an additional $2 million (Sh150 million) to the Government to waive its pre-emptive rights. The rights allow an existing shareholder to purchase any additional shares if a chance arose before any other third parties are considered.
Besides technology, Afton is also known for producing chemical components and products that improve the refining process and performance of fuels, resulting in lower fuel use, improved performance and reduced emissions.

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