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Essar Oil has agreed to a Kenyan Government proposal in the
acquisition of the Kenya Petroleum Refinery.
The
nod by Essar ends a protracted dispute pitting Essar and Libya's Tamoil
Africa Holdings for a 50 per cent stake in the refinery being offloaded
by three oil majors.
"The idea was to get the best terms. Tamoil is
offering much better terms than Essar. We asked Essar to match the
offer, but they were unwilling," Mr Patrick Nyoike, the Energy PS, said
while confirming the new arrangement.
Under
the arrangement, Tamoil and Essar will now own a quarter of the
refinery each, leaving the Government with virtual control of the
facility.
The three majors - Shell Petroleum,
Beyond Petroleum and Chevron Kenya - had picked Essar to buy the stake
through a competitive bid. However, this amounted to nothing once the
government - which owns the other half of the refinery - decided to
exercise its first right of refusal in favour of Tamoil.
The
majors, however, will not be allowed to sell the stake directly to
Essar. They will first sell it to Tamoil which will parcel half to
Essar. It is not clear what safeguards are in place to ensure Tamoil
does so. The refinery is currently processing 1.6 million tonnes of
crude, reflecting a 40 per cent utilisation factor.
The
end of the stalemate now paves the way for the proposed Sh22 billion
upgrade of KPR to begin any time. An upgraded refinery will increase
yield of white products by as much as 15 per cent of crude oil. This
will reduce the overall unit cost and prices of all products and also
produce gas oil with a sulphur content of less than 0.05 per cent.
Treasury
says the offer by Tamoil to provide debt financing of 70 per cent of
the capital expenditure with accruing interest at 1.5 per cent above
the London Inter Bank Overdraft Rate (Libor) for the refinery upgrade,
was "favourable for KPRL and the country."
The
Libyans, sources say, have also promised that the loan was to be
extended to a joint venture company to be formed for the project and
would be owned 51 per cent by the Libyans and 49 per cent by the
Government. The loan would have a moratorium of three years and a repayment period of up to eight years.
Essar's offer, it is understood, has a repayment
rate 3.5 per cent above Libor. Essar had offered to arrange $322
million (about Sh22 billion ) upgrade loan and release the money within
six months of agreement.
Its key condition was
that it get at least 50 per cent shareholding in exchange for which it
would pay $5 million in equity for the upgrade on behalf of the
Government. Essar had also committed to top up the difference for up to
$20 million if the Government got a price for the 50 per cent stake
above the $11 million Essar agreed with the majors.
Mr
Nyoike says the refinery has four million shares valued at Sh20 each,
bringing the nominal value to Sh80 million. Three years after the
upgrade the government is expected to cede some 25 per cent of its
stake through an Initial Public Offering to Kenyans. The Government
last week disbursed Sh500 million as part of the Sh1 billion set aside
for upgrade.
PetrolWorld 050608
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