Government plans to convert sole refinery into storage plant

March 23, 2016 10:09 AM

"Converting the refinery into an oil storage facility ahead of commencement of production of the country’s first oil is a milestone for the country," Keter said in a statement.

A general view shows an oil rig used in drilling at the Ngamia-1 well on Block 10BB, in the Lokichar basin, which is part of the East African Rift System, in Turkana County April 5, 2012. REUTERS/Njuwa Maina

Kenya plans to take over ownership of a mothballed refinery in Mombasa and convert it into a storage plant, a top official said, to help progress the country's energy ambitions.

The refinery has not been operational since 2013 after plans for a $1.2 billion upgrade were abandoned on the advice of consultants who said it was not economically viable.

Energy and Petroleum Cabinet Secretary Charles Keter said the East Africa nation will pay out 500 million shillings ($5 million) owed to the facility's co-owner, India's Essar Energy, to pave the way for the plant's revival.

Oil firms in Kenya have said they could start small-scale production of crude, transported by trucks, in 2017, but full commercial output will depend on building a pipeline, which is still under discussion.

Essar bought a 50 percent stake in Kenya Petroleum Refineries Ltd in 2009 for $7 million from a group of oil marketers, including BP, Chevron and Royal Dutch Shell.

Essar had planned to increase the refinery's crude handling capacity to four million tonnes of crude per year (79,000 barrels per day) by 2018, up from 1.6 million now but oil marketers in Kenya, unhappy with the refinery's products and costs, demanded for it to be closed.

Keter said the refinery will be run by the state-owned Kenya Pipeline Company (KPC) once Essar exited.

Oil products from the plant serve customers in Kenya, Uganda, Rwanda, Burundi, Tanzania and parts of the Democratic Republic of Congo.

The East African nation and neighbouring Uganda have both made oil finds that have yet to start commercial production, part of a string of energy discoveries along the east coast of Africa.

($1 = 101.4500 Kenyan shillings)

(Editing by Drazen Jorgic; Editing by Elaine Hardcastle)