KP R

L

Viability of Small Refineries: Kenyan Perspective

Presentation to:UNCTAD

11th Africa Oil & Gas, Trade and Finance ConferenceNairobi Kenya

ByJohn Mruttu

General Manager24th MAY 2007

NOT AN OFFICIAL UNCTAD RECORD

contents

1. Current configuration.

2. Constraints & search for alternatives

3. Proposed investment proposals and impact

4. Viability of small refineries: our experience and key enablers.

Where We AreYou are hereSomaliaEthiopiaSudanAustraliaTanzaniaUgandaNyaliLikoniIndian OceanTo NairobiTo Malindi M

ombasa

KPRL BOARD 4 Directors GoK appointed, 4 Directors appointed by Industry

Refinery Customers Processing Agreements

KPRL

CORPORATE STRUCTURE

GoK 50% Shell 17.1% BP 17.1% Chevron 15.8%

Our Capacity

Plant Year Capacity

CDU1 1963 5,500 t/d

CDU2 1974 3,600 t/d

HDT1 1963 2,200 t/d

HDT2 1974 1,100 t/d

Kero HDT 1974 800 t/d

Platformer 1 1963 450 t/d @ 95RON

Platformer 2 1974 600 t/d @ 95 RON

Bitumen 1963 135 t/d

Grease 1970 8 t/d

hydrotreater petrol

gas

DPK

Diesel

Fuel Oil

reformer

Existing configuration

Competitive constraints

Hydro skimming configuration.– High yield of residue – Lack of residue conversion facilities results in poor refining economics

No sulphur removal capability for diesel.– Diesel will not meet low sulphur specifications in line with international

trends.

Dependant on light & sweet crude oils.– Relatively expensive– Light crude- US$60 per barrel, heavy crude: US$53 per barrel (FOB)– After upgrading heavy crude oils will be the primary raw material

Frequent power interruptions resulting in under utilization and reduction in processing efficiency

Search for options

Ministry of Energy Study on KPRL conducted by KBC Process Technology May 2004, main conclusions:

In its current configuration the refinery requires support to remain viable.

Investment is required to secure a competitive position and meet product specifications.

Upgrading the refinery is more beneficial than product import terminal.

Thermal Gas Oil Unit recommended for residue conversion.

hydrotreater petrol

gas

reformer

DPK

Diesel

Fuel Oil

Thermal gasoil unit

Diesel treater

hysomer

proposed configuration

cost estimates of investment proposals

Thermal Gas oil unit (TGU) for residue conversion combined with 35MW gas turbine in a combined cycle

US$300 m

Diesel Hydrotreater- sulphur removal

Tops Isomerization-unleaded Petrol production

Sulphur recovery and water treatment facilities

LPG handling and import facilities

Total US$300 m

Crude slate & product yield

Current operation Upgrade operation

Light crude 80% 40%

Heavy crude 20% 60%

White product yield

63% 72%

Residue yield 37% 28%

VALUE ADDITION

KP R

L

Added Value

39.2 MUSD/a

Current Fuel Oil demand Future Fuel Oil demand

0

500000

1000000

1500000

2000000

2500000

3000000

1.6 Mt/a CurrentConfiguration

1.6 Mt/a TGUConversion & Clean

Fuels

2.2 Mt/a TGUConversion & Clean

Fuels

3.2 Mt/a TGUConversion & Clean

Fuels

To

ns/a

LPG

MOGAS

KERO

AGO

FUEL OIL

Project economics-

KPRL Equity Returns Refinery Upgrade

LPG Storage Facilities

After tax Rate of Return

28% 18%

Payback period (years)

6.5 8.5

Potential Sources of funds

several financial institutions including local banks, foreign banks, export-credit agencies have indicated willingness to finance the investment.

However, the maximum borrowing is 70% of estimated costs. 30% equity contribution is required.

Viability of small Refineries: our experience

Financial benefits.– Least cost option for product supply in the country. – Attractive return on investments

Alternative supply routes– Ability to exploit emerging sources of crude oil in the region thus

diversifying supply routes and hence improving the security of supply.

Social benefits– Creation of 300 jobs during construction period and another 100 jobs

during operation.– Distribution of wealth to approx 1000 families– increased supply of LPG at reduced cost in the country with the

associated health and environmental benefits.– Technology transfer and manpower development

Viability of small refineries: key enablers

Strong domestic demand; offshore export market more difficult.

Residue conversion: hydro-skimming will not work. Convergence of Product specifications: negotiate for

phased (timing) approach Financial viability should not be the only criteria:

– Social benefits count as much.– Emissions. What is cost to the environment when Africa

exports crude oil to another continent and imports finished products?

Way Forward for KPRL Government of Kenya’s support for the

proposals to upgrade the Refinery has been announced.

The Company has been mandated by the Board to: – Update the cost estimates– Progress the development of options for

project financing (equity & debt)

THANK YOU