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Essar plan for $500m upgrade of Mombasa refinery suffers yet another setback

Discussion in 'Kenyan News and Politics' started by Geza Ulole, Feb 20, 2012.

  1. G

    Geza Ulole JF-Expert Member

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    Feb 20, 2012
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    [h=1]Essar plan for $500m upgrade of Mombasa refinery suffers yet another setback[/h] [​IMG] Kenya Petroleum Refinery, Mombasa. Picture: File

    The Kenya Revenue Authority has hit the Essar Group of India, the firm that co-owns the Mombasa-based Kenya Petroleum Refinery, with a $19 million tax bill.
    The company is however contesting the tax bill, arguing that in the agreements establishing a joint ownership of the refinery with the government, the entity was not to pay back taxes.
    The tax bill is the latest in a series of setback that continues to shackle the India-based multinational company since it invested in Kenya Petroleum Refinery in 2010, which it says it is planning to upgrade at a cost of $500 million.
    Analysts said that the tax dispute is likely to delay the implementation of the investment plan at a time the refinery is seeking money from the international market to pay for an upgrade. The project also faces major political risks with major oil multinationals operating in Kenya calling for the refinery to be shut down.
    So far, since the Kenya government brought in Essar, there is little to show for the change of ownership save for $10 million investment in a power plant at the refinery aimed at cutting energy costs.
    The firm has for months been trying to get the Kenya government to commit funding to the upgrade and approve a major plan that could see the firm start importing its own crude for processing as well as seeking customers in the region.
    The Essar Group is planning the $500 million upgrade of the region’s only refinery in an ambitious plan that could see the firm start importing its own crude for processing.
    Essar aims to transform the 50-year-old toll facility into a merchant refinery as it positions itself to play a major role in an emerging petroleum industry in East Africa. This move comes at a time other countries in the region such as Uganda, Tanzania and South Sudan are weighing whether to build their own refineries.
    This could set off an investing wave that would see the region put tens of billions of dollars into duplicating energy infrastructure as countries race to develop their petroleum industry infrastructure.
    Essar’s four-year joint venture with the Kenya government has continued to flounder as it battles a series of setback related to funding model and operation strategy. The latest setback is the decision by the Kenya Revenue Authority to demand Ksh1.6 billion ($19 million) in back taxes.
    The predicament of the investor is playing out against a backdrop of intense lobbying by oil majors against the upgrade of East Africa’s only refinery. Some of the oil majors have a significant interest in oil exploration and production in Eastern Africa. They are opposed to the upgrade on the grounds of overcapacity in the refinery business internationally. They have also argued that the refinery will still need tariff protection to survive even after the upgrade by the Indian investors.
    They have been lobbying the government to instead shut down the refinery.
    The Indian conglomerate has calculated that an upgraded refinery in Mombasa is likely to occupy a strategic place in an emerging petroleum sector that will have to be supported by new oil fields, refineries, and new oil pipelines connecting Kenya, Uganda, Ethiopia, Rwanda and South Sudan.
    Indeed, recent developments point to an emerging petroleum sector in the East African region which will need new infrastructure. Kenya and Uganda have just appointed a joint technical committee to oversee the building of a $3 billion pipeline between the proposed port of Lamu and the oilfields in South Sudan.
    A feasibility study for a pipeline between Eldoret and Kampala conducted by Pespen Ltd was completed in 1999. A later study by Nexant Ltd in 2006 established the viability of a unidirectional pipeline between the two countries. Indeed, Kenya and Uganda went to the extent of appointing the Libyan investor, Tamoil East Africa, to build the pipeline.
    With the collapse of the Gaddafi regime in Tripoli, implementation of the project is now in doubt. Several other developments point to a new petroleum sector in the region. First, large quantities oil crude oil have been found in Uganda. Even though transportation and evacuation remain a major challenge, President Yoweri Museveni has made it clear that his priority is to build a refinery in Uganda.
    Secondly, the intensity of oil exploration in Kenya and Ethiopia — especially by Irish company Tullow — suggests that the two countries could strike oil in the near future. Tullow is expected to make an announcement on its drilling efforts in May.
    Thirdly, there is a strong possibility that the DRC will also soon strike oil on its side of Lake Albert.
    These developments have sparked a major discussion among the region’s political elite with debate raging about what East Africa must do to harmonise investment spending to avoid waste.
    Most oil-producing countries across Africa have chosen to export crude to Europe, Middle East and Asia and the United States and to re-import it as petroleum product. In the process, the value added was taken out of Africa, to be earned by the oil majors operating in locations where they have refining capacity.
    Uganda has emerged as the leading voice in propagating the case for a local regional petroleum sector with a full value chain. Indeed, the three-billion-barrel oil reserve discovered in Lake Albert has seen Museveni go head to head with the oil majors, with Kampala arguing for a system where the value added by the petroleum sector remains in the region rather going to China or Europe.
    On its part, Kenya wants to entrench its position and to stay ahead in terms of investment in petroleum infrastructure. In East Africa, Kenya is the only country with a refinery, which the government co-owns with the Essar Group.
    The Mombasa-Nairobi pipeline that extends to Kisumu and Eldoret is also the only pipeline in East Africa.

    Procurement for consultancy services for an alternative line between Nairobi and Mombasa has just started.
    In the coming 10 years or so, Kenya has to take a strategic decision either to remain a consumer of product refined in Uganda or South Sudan or upgrade its own refinery in Mombasa and thereby position it to compete for the estimated total 500,000 barrels per day of crude projected to be produced in the region by South Sudan, DRC, Uganda, Tanzania and Kenya. Apparently, Kenya is also calculating that the Mombasa facility will be the natural facility to refine the initial 20,000 to 30,000 barrels per day that Uganda is expected to start producing.

    MY TAKE
    Kenyan media propaganda at its behest, does it mean they have no idea of a trans-nations oil pipeline between Tanzania and Zambia (over 1710 km)? Or a 207 km gas pipeline between Songosongo and Dar es salaam! Or these Kenyan media continue to do their unjust nonrecognition of other countries achievement on the interest of their country to send their intended message across! They should watch the space cause another pipeline betwen Mtwara and dar es salaam over 600 km is on the board with over US$ 1 bio. for its construction already secured!
     
  2. livefire

    livefire JF-Expert Member

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    Its the nature of Kenyans, if you dont market yourself as a strategic hub, no one will. /i see no blunder in collecting tax levies/ one billion is a drop in the ocean. Kenya has by large reaped significantly from the Mombasa refinery. SS dashing there hopes on Lamu cant come at a better time. Anyway, I wonder why a sane African would succumb to pressure at a time when its economy is about to take the flight path. ''That Mombasa port be shut down,'' duh!?!?!?! by doing so the Entire East Africa region will end up being slaves to western parties. Petroleum products will cost even higher than they currently do at the event of the slightest shockwave.
     
  3. The Mockingjay

    The Mockingjay JF-Expert Member

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    Swali: Hivi pipeline ya Tanzania-Zambia ina serve cities along the pipe au destination ni Zambia tu?

    Kama tunataka kuona bei ya mafuta inashuka, inabidi tupiganie pipe line ziwepo to all major cities in the country.
    Hii however itapingwa sana na wafanya biashara wenye biashara za kusafirisha mafuta by trucking!
     
  4. G

    Geza Ulole JF-Expert Member

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    so in ur brain can u think of that refinery surviving competition from Uganda a producer of oil from 2015? Mind u SS wants to build only a pipeline and NOT a using a refinery in Mombasa since they have the most modern refinery in their country!
     
  5. livefire

    livefire JF-Expert Member

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    the tone in your statement is already defensive bro but chill. its very much viable, currently what we produce doesnt actually satisfy the Kenyan Economy. I repeat again, Its a big YES. when SS exports that crude, dont u think Kenya has its eyes on the same commodity too? The crude oil if processed within the country will lower the petrol prices. If this wont be adequate still the players in the international markets can be invited to the negotiating table but by this time the ripple of effects will have already taken place. #the costs will have drastically reduced. Back to you, has the basics of this simple economics found its way to your head? Btw Uganda can at the same time export its oil to Kenya, its a win-win situation.
     
  6. G

    Geza Ulole JF-Expert Member

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    u wish SS to export crude but that won't happen
     
  7. livefire

    livefire JF-Expert Member

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    Stop arguing about almost anything and everything. I wont peddle on wishes, heres a link.
    South Sudan reaches oil pipeline deal with Kenya | SweetCrude Reports
    Bloomberg quoted South Sudanese government spokesperson Barnaba Marial Benjamin as saying construction will being ¡°assoon as sources of funding are made available,¡± which should be around month.
    The issue of raising funds for the pipeline is complicated by the shutting-in of oil production last week in South Sudan in response to the perceived ¡°theft¡± of its resources by Sudan to the north. Sudan has been demanding that its neighbour to the south pay $32 per barrel for crude oil shipped through its pipeline infrastructure to Port Sudan for export.
    Numerous shipments have been held while other quantities have been diverted to refineries controlled by the Khartoum regime.
    This drew an angry response from South Sudan with President Salva Kiir...........the rest you can read it up in the link above
     
  8. G

    Geza Ulole JF-Expert Member

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    u should take time to understand what i urge otherwise don't waste ur time to comment pipeline is not a refinery and i meant SS is not interested to use Kenya's refinery since they will be so stupid to refine their crude in Kenya and not have their own refinery!
     
  9. livefire

    livefire JF-Expert Member

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    Would you stop shifting posts like u got no affirmative stand. 1)U wanted i prove the necessity/viability of the refinery upgrade which i did, 2) u shifted your post slightly and suggested that Sudan wont export its oil in crude form through Kenya and i gladly provided a link to prove otherwise. Now this? Come on buddy, you are abusing my intellectual capacity. Did i not state the refinery in itself actually doesnt satisfy wholly the Kenyan economy? Any upgrade would be categorically to serve the kenyan market, and maybe Uganda if there refinery will delay or take time to reach its full operational capacity. I never quoted we exporting refined crude to SS. For further clarifications dont hesitate to ask.
     
  10. G

    Geza Ulole JF-Expert Member

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    [​IMG]

    NEWS
    Essar lays out costly exit terms for Kenya

    [​IMG]
    The Kenya Petroleum Refinery in Changamwe. Photo/File
    IN SUMMARY

    • Essar Energy wants the Kenyan government to take over debts owed to banks.


    Kenya could shoulder a heavy bill for the Mombasa refinery if it accepts a proposal by Essar Energy as the Indian conglomerate exits from the facility.

    Essar, the government’s partner in the Kenya Petroleum Refineries Ltd-run facility, wants the government to take over debts owed to banks and other creditors.

    In a proposal tabled on November 11 at a meeting between the two shareholders, the firm also asked the government to settle salary arrears owed to employees as well as commit to meet all the labour costs in the event the refinery is shut down.

    According to officials who attended the meeting, Essar also expects Kenya to meet the plant-decommissioning cost if the refinery is closed down.
    Kenya was reported to have rejected the entire proposal, triggering a stalemate that is expected to be resolved this week.

    Abandoned plans
    Essar said last month it would sell its 50 per cent stake in the Mombasa plant after its plans for a $1.2 billion upgrade were abandoned on the advice of consultants, who said it was not economically viable.

    READ: Essar plans $5m exit from Mombasa oil refinery

    KPRL chairman Suleiman Shakombo said shareholders will decide the way forward for the plant. “Benchmarks for further discussion were agreed on by the shareholders, but the details can only be disclosed by either the government or Essar. I do not want to pre-empt the next meeting,” he said.

    The meeting is set for November 29, and it is understood that a decision is to be made on whether the refinery will be shut down, upgraded or converted into a storage terminal.

    Shutting down the refinery would hurt Kenya’s geostrategic role as the hub of the oil trading business in East Africa. Kenya is the dominant oil supply route to landlocked neighbours Uganda, Rwanda, Burundi and eastern Congo.

    “Shareholders will meet to discuss a smooth exit for Essar. We want to manage the attrition of workers in case it happens,” said Energy Cabinet Secretary Davis Chirchir.

    Sources said although Essar in October announced it will work with the government to ensure a smooth transition of ownership, officials dealing with Indian firm want to ensure Kenya is not saddled with a hefty bill.

    “If Essar leaves, Kenya may have to look for another strategic investor. The issue is being handled cautiously as KPRL’s closure is likely to raise a political storm in the Coast region due to loss of jobs,” said an official who attended the meeting.

    The exit deal, valued at Ksh433 million ($5 million), is Ksh173 million ($2 million) lower than what the Indian firm paid in 2009, representing a 28.5 per cent depreciation.
    Conversation of KPRL to a storage facility to be managed by Kenya Pipeline Company (KPC) has been suggested. KPC’s board of directors this month visited the refinery, a move that was interpreted as a familiarisation tour.

    Essar said a series of studies by international consultants into the technical, economic and funding elements of an upgrade of the Mombasa refinery had shown this was not viable.

    “Essar Energy will continue to work closely with the government of Kenya to ensure a smooth transition of ownership… Beyond that, we have no further comment,” said the company’s head of media relations Jonathan Miller.

    The politics around the upgrade or closure of the refinery have set East Africa talking, with Uganda planning a refinery in which Kenya is to get a stake.
    Essar lays out costly exit terms for Kenya - News - www.theeastafrican.co.ke

    MY TAKE
    The hullabaloo is over i guess no refinery no a single inch of pipeline extension but a painfully legal battle btn GOK and Essar is underway! I call them unrealistic cum over ambitious projects good observers see LAPSSET going the same path. As always I keep advising Kenyan media to first secure finances before making noises cause embarrassment is always a product of exaggeration!!
     
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