Mumbai: The Essar Group’s plans to buy a 50% stake in Kenya Petroleum Refineries Ltd, or KPRL, which would have given it a presence in the African refining market, have hit a roadblock with the Kenyan government, which holds the remaining stake, not yet clearing the deal because of concerns related to energy security, according to a person familiar with the development.
The government would prefer that the 50% stake is shared by at least two companies and not held by a single entity, said this person, who did not want to be identified. Such an arrangement would ensure that the government retained its control over the firm.
Several other companies, including India’s Reliance Industries Ltd and Libya’s Tamoil Africa Holdings Ltd, have expressed interest in Kenya’s only refinery.
Essar Energy Overseas Ltd, a subsidiary of India’s second biggest private refiner Essar Oil Ltd, won the right 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%, following a competitive selection process.
But the Kenyan government, which holds the first right of refusal to the sale of the combined stake of these three companies, is yet to indicate whether it will exercise this right.
Essar Oil chief executive officer Naresh Nayyar said his company has submitted its proposal to the Kenyan government and is expecting an approval shortly, but did not elaborate or give a time frame for this.
“With our submission, the government will have to give us a no-objection certificate for this stake sale,” Nayyar said.
The delay, he said, was only because of recent political instability in the country.
More than 1,000 people have been killed and at least 300,000 displaced after disputes related to December’s presidential elections in Kenya.
A Mumbai-based analyst who tracks the oil industry said leading international oil companies are exiting from east African countries because of political instability.
“For Essar and Reliance Industries, KPRL would be a good bet, provided it comes at the right price in a more stable political environment,” said this analyst who did not wish to be identified.
However, a former head of a state-run Indian oil marketing company said Kenya is the safest country in east Africa, and presents a great opportunity from the point of view of being a market as well as a source of crude oil.
KPRL finance manager Anthony Munyao said the company would not comment on the Essar deal as the government is the final authority in the stake sale.
“Apart from the Kenyan government, only sellers can comment on the issue,” he said in a phone interview.
Mint could not immediately contact relevant authorities in the Kenyan government.
“We are not prepared to comment as the discussions are going on between various interested parties,” Martin Dickinson, project manager with Kenya Shell Ltd, said in an email statement to Mint.
Executives of Tamoil Africa Holdings Ltd did not return calls.
A senior executive at Reliance Industries Ltd said the Mukesh Ambani-controlled firm is always scouting for acquisitions in Africa to source crude oil for its own facility and sell petroleum products in African countries. This executive did not wish to be identified.
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 (Rs1,688- 1,899 crore).
The refinery produces liquefied petroleum gas, gasoline, 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.
Essar also has two exploration and production blocks in Africa, one each in Madagascar and in Nigeria.
If it goes through, Essar’s acquisition of a 50% stake in KPRL will be its first international acquisition in the refining sector, in line with its strategy of achieving refining capacity of 1 million barrels of oil per day.
This the second Essar acquisition in recent times to run into trouble. The company’s acquisition of steel maker Esmark Inc. for $1.1 billion has come against some opposition with the a key shareholder of the US company urging its board to sell the company to Russian firm OAO Severstal, following opposition to Essar’s offer from the United Steelworkers, a powerful union of steel workers in the US and Canada.