MARKING its foray into the overseas refining market, Essar Energy Overseas, a group company of the diversified Essar Group, has completed the acquisition of a 50% stake in Kenya Petroleum Refineries (KPRL) for an undisclosed amount. KPRL runs a 4 million metric tonne per annum (MMTPA) refinery in Mombasa, Kenya. The stake was bought from global majors Shell, BP and Chevron, who have been associated with the refinery for the past 50 years. The Essar group company will now invest another $450 million to upgrade the refinery.
The agreement to acquire the stake in the refinery was announced in January last year. The Kenyan government will continue to hold the remaining 50% stake. This acquisition is a step towards the Essar groupâ€™s vision of reaching a global refining capacity of 1 million barrels per day. The Ruias-owned Essar Group currently operates a 2.8 lakh barrels per day (bpd) refinery in India. The company is in the process of expanding this to 3.2 lakh bpd by 2010 and to 7 lakh bpd by 2011.
Commenting on the acquisition, Shashi Ruia, chairman of Essar Group said, â€œThis is an excellent addition to our oil assets and fits well with the groupâ€™s strategy of building and becoming a global oil and gas player. This will further enhance our presence in the growing African market.â€ When queried on the reasons for the transaction taking 18 months to complete, Prashant Ruia, chief executive, Essar Group, through a conference call from Kenya, said, â€œKenya went through its elections which delayed the process We look forward to working with the Kenyan government and making KPRL a global market leader.â€ The Kenyan government executed its pre-exemption rights in favour of Essar Group for consideration of $2 million.
The Mombassa refinery is the only refinery in eastern Africa and produces gasoline, diesel, kerosene fuel oil and liquefied petroleum gas (LPG). KPRLâ€™s products are sold into the Kenyan market and exported to neighbouring countries including Tanzania, Uganda, Burundi and Rwanda. In that context, Essar Oil CEO Naresh Nayyar said, â€œWith this acquisition, Essar expects to play a major and vital role in the African oil and gas markets. Demand for petroleum products in KPRLâ€™s markets is estimated at 5 mmtpa. Going forward we would foray into oil retailing in this sub-continent.â€ Kenya is an unregulated market and Indian energy firms have been aggressively looking to expand operations here since it has a low cost of operation.
KRPL already has wells in Africaâ€”three exploration and production blocks in Madagascar and one in Nigeria. Meanwhile, the Essar group, which has interests in sectors like telecommunications, steel and energy, has a presence in east Africa through YU which is Kenyaâ€™s fourth mobile phone firm.
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