The remaining 50% of the refinery, which has a capacity of four million metric tonnes a year, will reside with the Government of Kenya.
The Mombasa-based refinery is the only one in Eastern Africa. It currently produces liquefied petroleum gas (LPG), gasoline, diesel, kerosene and fuel oil.
Essar Oil did not disclose the amount paid citing confidentiality, but did say that a planned upgrade of the refinery, including the addition of secondary units, will cost between $400 million and $450 million. This outlay will be shared between Essar and the government. The existing oil majors are said to be exiting the refinery because they do not want to participate in the expansion project.
Analysts estimate Essar could have paid up to $750 million for the stake.
The refinery's products are sold domestically and exported to neighbouring countries including Tanzania, Uganda, Burundi and Rwanda. Demand for petroleum products in these markets is estimated to be five million tonnes per annum.
Essar OilÆs assets include: a 10.5 million metric tonne refinery which is being scaled-up to produce 34 million metric tonnes at a project cost of $6 billion; developmental rights in proven exploration blocks in India and abroad; and a downstream retail network of 1,248 fuel stations across India with the supporting infrastructure.
The Indian company has a stated strategy of achieving refining capacity of one million barrels per day. It already has three exploration and production blocks in Madagascar and one in Nigeria.
Analysts commented favourably on the deal saying it will provide Essar Oil with a foothold in Africa and an opportunity to grow its business on a continent perceived as having high growth potential.
ôWe are very pleased that our first refinery acquisition outside of India will be made in Kenya,ö says Naresh Nayyar, chief executive of Essar Energy, in a written statement. ôWe look forward to working with the government of Kenya to develop [the refinery] further to supply the growing Kenyan and adjacent markets and finalise the upgrade project.ö
Others reportedly interested in the stake, which was sold via a limited auction, were EssarÆs Indian competitors Reliance Industries and Bharat Petroleum.
The deal is subject to certain clearances including government approval and is expected to close shortly.
Essar Oil posted some initial gains on the Bombay Stock Exchange after the news was announced. It touched Rs302 per share ($7.69) before finally closing down around 1% at Rs296. The Sensex index traded down by as much as 3.6% during the day, taking a cue from global markets. It eventually ended the day down 1.9%. This was the third consecutive day of negative trading on the Sensex, leading some analysts to speculate that the bull run which saw the index cross 21,000 points last week could be over.
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