Fuel distributors have long complained about the poor quality products from the 50-year-old refinery in the port city of Mombasa and want it closed so they can buy cheaper and better imports. Under Kenyan law, they are obliged to buy its fuel.
India’s Essar Energy, which co-owns the refinery with the Kenyan government, has said it wants to raise $1.2 billion for a substantial upgrade.
Linus Gitonga, director of the Energy Regulatory Commission (ERC), said the refinery would be converted into ‘something more useful’, including a storage facility, if the proposal for its upgrade turns out to be uneconomical.
“The report on an upgrade feasibility study will be out by this month end, and we will use it to decide whether it is economical to do an all new refinery, upgrade the existing one, or convert it into a storage facility,” Gitonga said.
“If we don’t getfinancefor the upgrade, we could turn it into an import storage facility, a strategic national storage facility, a regional storage facility, or we could as well lease it out to interested marketers for storage only,” he added.
Fuel distributors say the refinery is operating below its 35,000 barrels per day capacity and some have threatened to boycott it. The ERC has said dismantling the facility completely is out of the question.
Gitonga said the fuel distributors are receiving compensation for losses due to refinery inefficiencies and urged them to understand the importance of the plant, which employs 250 people, for the Kenyan government.
Khohn Crippen Berger, a UK-based firm, has been contracted to carry out an upgrade feasibility study of the refinery and its report will be discussed at a shareholder’s meeting to be held at the end of May.
Essar Energy plans to increase the refinery’s crude handling capacity to 4 million tonnes of crude per year by 2018 from 1.6 million now. (Editing By Drazen Jorgic and Patrick Graham)