Essar Energy said the decision follows extensive studies finding upgradation of the refinery economically unviable in the current refining environment.
The Mombasa refinery has a nameplate capacity of 4 million tonnes per annum but could process only 1.6 million tonnes last year. Essar Energy had planned USD 400-450 million investment in upgradation of the refinery to achieve optimal level of operation.
"Essar Energy, through its subsidiary Essar Energy Overseas Ltd, has exercised a put option under the shareholders' agreement to sell its stake in Kenya Petroleum Refineries Ltd (KPRL) to the Government of Kenya, which owns the remaining 50 per cent interest in the Mombasa refinery," the company said in a press statement.
Essar Energy had acquired 50 per cent stake in KPRL in July 2009 for USD 7 million from BP, Chevron and Royal Dutch Shell.
"Under the terms of the shareholders' agreement established with the Government of Kenya at the time of the acquisition, Essar Energy has the right, under certain conditions, to exercise a put option under which the Government of Kenya would buy Essar Energy's 50 per cent share of KPRL for USD 5 million," it said.
It has now decided to exercise that right.
BP, Shell and Chevron had exited the refinery in 2009, selling their cumulative 50 per cent interest to Essar Energy. Shell and BP held 17.1 per cent stake each while Chevron had 15.8 per cent stake.
The Mombasa refinery is the only refinery in eastern Africa and produces LPG, petrol, diesel, kerosene and fuel oil. KPRL's products are sold in the Kenyan market and are also exported to neighbouring countries, including Tanzania, Uganda, Burundi and Rwanda.
Essar Energy had appointed former Indian Oil Corp (IOC) acting Chairman B M Bansal as chief executive officer of KPRL and tasked him with turnaround of the unit.
"This decision (to exit) by Essar Energy follows an extensive series of studies by international consultants into the technical, economic and funding elements of an upgrade of the Mombasa refinery. Following these studies, Essar Energy believes that the upgrade is not economically viable in the current refining environment," the statement said.
Essar Energy said it will continue to work closely with the Government of Kenya to ensure a smooth transition of ownership.