Viability of Small Refineries: Kenyan Perspective Presentation to: UNCTAD 11 th Africa Oil & Gas, Trade and Finance Conference Nairobi Kenya By John Mruttu General Manager 24 th 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 Are You are here Somalia Ethiopia Sudan AustraliaTanzaniaUganda Nyali LikoniIndian Ocean To NairobiTo Malindi Mombasa

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 PlantYearCapacity CDU119635,500 t/d CDU219743,600 t/d HDT119632,200 t/d HDT219741,100 t/d Kero HDT t/d Platformer RON Platformer RON Bitumen t/d Grease19708 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 TotalUS$300 m

Crude slate & product yield Current operationUpgrade operation Light crude80%40% Heavy crude20%60% White product yield 63%72% Residue yield37%28%

VALUE ADDITION Added Value 39.2 MUSD/a Current Fuel Oil demandFuture Fuel Oil demand

Project economics- KPRL Equity ReturnsRefinery UpgradeLPG Storage Facilities After tax Rate of Return28%18% Payback period (years)6.58.5

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)

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