Essar Energy’s Split From Partnership with Kenya to Cost $3.3 million

Kenya has given Essar Energy the terms and conditions for the Indian firm’s exit from the Mombasa refinery owned by both parties after they failed to reach an agreement on investment.  With the move, the stage is now set for Essar Energy to give up a 50 percent stake it has held in the oil refinery (Kenya Petroleum Refineries Limited, KPRL) since 2007.

Negotiations are said to be on between both parties, with local media The Nation quoting a source privy to the talks as saying up to Sh283 million ($3.3 million) would be paid by the government to Essaar Energy for the divorce pending the approval of the office of the Attorney-General.

Davis Chirchir, Cabinet Secretary for Energy and Petroleum also said the document had been sent to the AG’s office for approval as Kenya was eager to end its partnership with Essar.  “We want to conclude this matter as soon as possible so that it can allow us to forge ahead with other plans,” said Chirchir.

Essar had in 2007 bought a 50 percent stake in KPRL following the exit of three international oil companies (Shell, BP Africa and Chevron Global Energy). With the government in need of investor who could inject capital for the refinery upgrade, Essar Group came along buying the stake through its subsidiary, Essar Energy Overseas Limited at $5 million.  $2 million was also paid by the company as consideration for the waiver of its pre-emptive right after the exit of the three oil marketers.

No upgrade had been done since the purchase as agreed by the two parties, with the Indian firm now finding it impossible to keep its end of the bargain, citing studies into the economic, funding and technical elements of an upgrade of the Mombasa refinery conducted by international consultants, which it said showed that an upgrade would amount to economical waste as it was not viable in the current refining environment.

The firm therefore announced in 2013 that it would like to exit as the two parties could not reach a compromise and the country had to resolve to entirely importing fuel after the refinery shut down operations.

Copyright Ventures Africa 2014