Mumbai: On the heels of an aborted attempt to acquire the US-based steel maker Esmark Inc., the Essar Group’s bid to gain presence in the African refining market by buying a 50% stake in Kenya Petroleum Refineries Ltd, or KPRL, appears to be collapsing as the Kenyan government, which holds the remaining stake, has cleared the deal in favour of Libya Oil Holdings Ltd.
The EastAfrican, an African newspaper, quoting unnamed sources, said the Kenyan government has asked Libya Oil Holdings to acquire a 50% KPRL stake that was being eyed by Essar.
In a 15 January statement, Essar Energy Overseas Ltd, a subsidiary of India’s second largest private refiner Essar Oil Ltd, said that it had entered into an agreement to buy Shell Petroleum Co. Ltd’s 17.1% stake in KPRL, British Petroleum Africa Ltd’s 17.1% and Chevron Global Energy Inc.’s 15.8%.
Second time unlucky : The Essar Group office in Mumbai.
However, the Kenyan government held the first right of refusal on the sale of the combined stake of these three companies.
According to a person familiar with the matter, the Kenyan government was exploring the option of splitting 50% stake ensuring the government retains its control over the firm.
“On paper, the arrangement is that the Indians will be accommodated by being offered shares in the company once the Libyans seal the deal with the three multinationals. As a matter of fact, the government has held discussions with both the Libyans and the Indians and agreed on an arrangement where the Indians will be accommodated,” the newspaper said.
“But, whichever way one looks at it, the Indians have been snookered over the deal. Once the Libyans sign a deal with the European multinationals, the Indians will have to rely on the benevolence of the former to accommodate them,” the article said.
Kenya’s treasury was trying to persuade the parties to sign a written document committing them to agree to the accommodation arrangement.
Mint has no independent verification of the newspaper’s claims.
Essar Oil chief executive officer Naresh Nayyar said the report was not entirely true. “At this point of time, we are in discussions with the government and company. I cannot offer a comment at this point of time since discussions are progressing,” Nayyar said without clarifying the issues under discussions or whether the deal is intact or not.
A Mumbai-based analyst, who tracks Essar Oil, said the company’s operating earnings were already stretched so not landing KPRL will be positive for the company.
“At present, the earnings and internal accruals are not impressive to go for a mega overseas acquisition for Essar Oil, though it will give an edge for Essar in African markets. But, the company has already leveraged to its maximum”, the analyst, who is not authorized to speak to media, said.
KPRL’s unit in Mombasa has the capacity to refine 4 million tonnes (mt) of crude a year and is the only refinery in eastern Africa, according to a statement issued by Essar Oil in January. The refinery is due to be refurbished at a project cost of $400-450 million.
The refinery produces liquefied petroleum gas, petrol, diesel, kerosene and fuel oil for sale in Kenya and export to neighbouring countries including Tanzania, Uganda, Burundi and Rwanda. The demand for petroleum products in these markets is estimated at 5mt a year.
This, the first international acquisition attempt by Essar in the refining sector, fits Essar’s strategy of achieving refining capacity of one million barrels per day.