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Reliance eyes Kenya Petro stake

Industry sources say Reliance Industries Ltd has expressed its interest in acquiring a 50 per cent stake in Kenya Petroleum Refinery Limited, reports Suprotip Ghosh.

business Updated: Sep 03, 2007 22:52 IST
Suprotip Ghosh

Reliance Industries Ltd (RIL) has expressed its interest in acquiring a 50 per cent stake in Kenya Petroleum Refinery Limited (KPRL), according to industry sources. The move will allow RIL to source petroleum products to supply to the European and American markets where no new refineries were coming up.

KPRL is one of Kenya's oldest refinery complexes with an annual capacity of 4 million metric tonnes. The Kenya government holds 50 per cent stake in the refinery, with Chevron and Royal Dutch Petroleum Company holding minority stakes. A Reliance spokesperson, however, declined to comment on the issue.

The entry of Reliance into Kenya would create a major shift in the dynamics of the oil market there, given the cost structure of Indian companies and its access to oil wells of the Middle East, and some of the world's biggest refineries. The operating costs of the two global petroleum giants are also high compared to companies such as RIL and GAIL.

Analysts feel the acquisition would make sense for RPL since it has one of the lowest operational costs in the world. Kenya's oil market is controlled by multinationals with very high operational costs.

RPL's per-million-tonne capital cost of Rs 518 crore is about 40 per cent to 60 per cent lower than the capital cost of other refineries set up in the Asian region.

Oil rich East Africa could also become another source of petroleum products, analysts said.

RIL will be among three new entrants in the Kenyan market, including Bharat Petroleum and Libya's Libya Oil Kenya Limited. "The companies have already acquired significant stakes in strategic segments of the oil business that energy sector analysts say will loosen the grip that multinationals have had on the market with consumers as the big winners," according to a report by allafrica.com, a website headquartered in Mauritius, which also reported Reliance's interest in acquiring a 50 per cent stake in KPRL.

RIL's entry is expected to create a pricing war that could crack the cartel-like behaviour that has persisted in the multinational-controlled market despite the entry of a large number of independent firms over the past five years, the report said.

Kenol/Kobil is the current market leader in Kenya with a 23.78 per cent share of the oil market and Shell has a 21.04 per cent share.

France's Total and Chevron of US have 17.94 per cent and 15.26 per cent respectively, according to PIEA.