Viability of Small Refineries: Kenyan Perspective Presentation to: UNCTAD

1. NOT AN OFFICIAL UNCTAD RECORD Viability of Small Refineries: Kenyan Perspective Presentation to: UNCTAD 11th Africa Oil & Gas, Trade and Finance Conference Nairobi Kenya By John Mruttu General Manager 24th MAY 2007

2. contents • Current configuration. • Constraints & search for alternatives • Proposed investment proposals and impact • Viability of small refineries: our experience and key enablers.

3. To Nairobi Ethiopia To Malindi Sudan Somalia You are here Tanzania Uganda Australia Nyali Likoni Indian Ocean Mombasa Where We Are

4. CORPORATE STRUCTURE KPRL BOARD 4 Directors GoK appointed, 4 Directors appointed by Industry KPRL Refinery Customers Processing Agreements

5. Our Capacity

6. Existing configuration gas petrol hydrotreater reformer DPK Diesel Fuel Oil

7. 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

8. 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.

9. proposed configuration gas hysomer petrol hydrotreater reformer DPK Diesel Diesel treater Fuel Oil Thermal gasoil unit

10. cost estimates of investment proposals

11. Crude slate & product yield

12. VALUE ADDITION Added Value 39.2 MUSD/a Current Fuel Oil demand Future Fuel Oil demand

13. Project economics-

14. 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.

15. 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

16. 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?

17. 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)

18. THANK YOU