Essar Energy Exits Joint Venture in Kenya's Oil Refinery

---

Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The India-focused integrated energy company Essar Energy plc (LSE:ESSR.L) (Port Louis, Mauritius) announced that it intends to exit its 50:50 joint venture (JV) with Kenya Petroleum Refineries Limited (KPRL) (Nairobi). The joint venture operates India's refinery at the Indian Ocean port city of Mombasa.

Essar's decision follows an extensive series of studies by international consultants regarding the technical, economic and funding factors for an upgrade to the refinery. As a result of these studies, the company believes that the upgrade is not economically viable. But Essar will continue to work closely with Kenya's government to ensure a smooth transition of ownership.

Essar acquired its 50% stake, valued at $7 million, in 2009 from BP plc (NYSE:BP) (London, England), Chevron (NYSE:CVX) (San Ramon, California) and Royal Dutch Shell plc (NYSE:RDS.A) (The Hague, Netherlands). Under the terms of the shareholders' agreement established at the time of the acquisition, Essar Energy has the right, under certain conditions, to exercise the put option in which the government would buy the company's 50% share of KPRL for $5 million. Essar Energy Overseas Limited recently exercised this option to sell its stake in KPRL to the government, which will now have full control of the plant.

The future of the refinery is under intense debate, with some saying that it should be turned into a storage facility for imported fuel, which would suit the country's needs better than the chronically inefficient refinery. The whole East African oil and refining sector is in a state of flux, including the oil production and refining potential of Uganda and the issuing of strategic pipelines running west-east and south-north. The Mombasa port will have a key place in the future, but whether this includes a refinery is not clear.

Plans for a $1 billion refinery upgrade through 2018 may never see the light of day.

For related information, see June 28, 2013, article - Upgrade Planned for East Africa's Kenya Refinery and Pipeline Network and August 3, 2012, article - Uganda's $5 Billion Refinery Set Against $5 Billion Regional Pipeline Hub

View Project Report - 300028711 300028715 300028737 300028910

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.