MUMBAI -(Dow Jones)- India's Essar Group said Wednesday that Kenya Petroleum Refineries Ltd., of which it owns 50%, is keen to upgrade the Mombasa refinery to process a wider variety of crude oil, raise production and improve efficiency.
Kenya Petroleum, in a board meeting in April, decided to appoint a consultant in the next few weeks to study the upgrade plan, which is likely to take several months to complete, Essar said in a statement.
The diversified group owns its stake in Kenya Petroleum via London-listed Essar Energy PLC (ESSR.LN). The remainder is held by the Kenyan government.
The statement comes after Martin Heya, Kenya's commissioner in charge of petroleum, told Dow Jones Newswires last week that the Kenyan government has shelved plans to upgrade its sole refinery at the port city of Mombasa and is in talks to import fuel from Uganda once production starts there at an upcoming refinery.
However, Essar says Kenya Petroleum is committed to making a decision on the modernization plan as soon as possible.
"It is clear that demand for oil products in East Africa will continue to rise and the Mombasa refinery is well placed to meet this demand," Kenya Petroleum Chief Executive Bimal Mukherjee said in the statement.
The Mombasa refinery supplies fuels to Kenya and its neighbors Uganda, Burundi and Rwanda. It has a nameplate capacity of 4.0 million tons a year but processes only 1.6 million tons due to inefficiencies.
After acquiring a 50% stake in the refinery in July 2009, Essar Energy had announced plans to invest $400 million-$450 million to upgrade the refinery but recent estimates put the cost at $1 billion.
Mukherjee said that, in principle, the company is keen to press ahead with the refinery modernization plan. "But before an investment decision can be made we must first get a more precise view of costs and be very clear that such a project will be economically viable."
Kenya Petroleum's board has also decided to expedite plans to build a nine-megawatt power plant at the refinery, at a cost of $12 million to $13 million, to tackle power outages, Essar said.
The African nation recently suffered from acute fuel shortfalls for several days when a power shortage forced the refinery to shut down, disrupting fuel supply for about a week.
The Essar statement also said that Kenya Petroleum's board has asked the management to prepare a plan to convert the Mombasa refinery into a merchant refinery that buys its own crude and sells its own products. It currently operates as a tolling refinery and charges companies for refining their crude.
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