The government wants to end its partnership with
a firm that controls a 50 per cent stake in the Kenya Petroleum
Refineries Limited.
In a letter dated September 12,
2013, Energy Principal Secretary Joseph Njoroge sought legal assistance
from the Attorney General on how to terminate the agreement between the
government and the firm Essar Energy Overseas Ltd.
LEGAL OPINION
“Essar
Energy Holdings of India has not lived to the expectations of the
government to upgrade KPRL as initially agreed. It will be prudent for
the government to disengage Essar in equity participation in KPRL to
allow GOK seek a serious investor to modernise the refinery,” read the
letter.
“The purpose of this letter therefore is to
seek your legal opinion on termination of the shareholders agreement
between GOK and Essar Holdings of India.”
NIGERIAN INVESTORS
The letter, seen by the Nation,
was copied to the Cabinet Secretary for Energy and Petroleum Davis
Chirchir and National Treasury Principal Secretary Kamau Thugge.
Interestingly,
the letter was written just days after an entourage of investors from
Nigeria visited the country and expressed keen interest in investing in
the local energy industry, specifically in the nascent oil and gas
sector and electricity generation.
During the
investment forum, Nigerian investors, including Africa’s richest man Mr
Aliko Dangote, held discussions with Mr Chirchir on key investment
opportunities in the local oil and gas sector.
Parliamentary
committees on Public Investments and Energy have already opened probes
into the affairs of KPRL, whose inefficiency due to reliance on old
refining technology has resulted in huge losses for oil marketing
companies and high fuel prices for consumers.
On
Monday, the House committee on Energy, Communication and Information
adjourned its hearing of the status of KPRL after it emerged that
representatives from the Ministry of Energy and Petroleum, led by Mr
Njoroge who appeared before it, were not adequately prepared with
information regarding how Essar acquired half of KPRL’s shareholding.
According
to a brief presented to the energy committee by the Energy ministry,
until May 2003 when the Cabinet resolved that the ministers of Finance
and Energy take on board interested investors to dilute existing
shareholders while injecting the required capital needed for the
upgrade, KPRL was owned by the government and international oil
marketing companies.
The facility was a joint venture
between the government (50 per cent), Shell Petroleum Company (17.1 per
cent), BP Africa (17.1 per cent) and Chevron Global Energy Inc (15.8 per
cent).
Essar Energy Overseas Ltd acquired the shareholding of the three oil marketers at a cost of $10 million.
According
to the Energy ministry, Essar had offered a goodwill of $11 million in
exchange of a waiver by the government to exercise its pre-emptive
rights to acquire the 50 per cent shareholding, as was provided for in
the company’s Articles of Association.
INITIAL COMMITMENT
“However,
following Essar’s success in a competitive bid process floated by the
private shareholders (oil marketing companies), the company changed the
goodwill offer from the initial amount of $11 million to $2 million,”
read a statement from the ministry of energy.
Essar has
been faulted for failing to honour its initial commitment, which,
according to the government, has created a shortage of cash to finance
upgrade of the refinery.
The Energy Regulatory
Commission, in a letter dated April 26, 2013 to the former Energy
Permanent Secretary Patrick Nyoike said the economy was losing billions
annually as a result of inefficiencies at the refinery, hinting that a
shutdown of the facility could be a solution to lowering the cost of
fuel.
“While the motive to protect KPRL was noble, the
effect of this policy has been massive loss to the economy resulting
into higher consumer prices. In the last 28 months when ERC has been
regulating prices, the economy has lost about Sh13.5 billion being the
price difference between product sourced from KPRL and product directly
imported as refined products,” read part of a letter signed by former
ERC director-general Kaburu Mwirichia.
Oil marketing
companies are demanding more than Sh7 billion from KPRL, which Deloitte
Consulting estimates to be the product yield loss that the marketers
have suffered at the hands of inefficient refining technology employed
by KPRL.
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