The Mombasa-based refinery will now import crude oil, process and sell refined products to oil marketing companies.
The firm has been operating a toll refinery since inception 50 years ago, whereby oil marketers have been importing crude oil for processing at the refinery for a fee.
The change in operations is part of the modernisation plan for the refinery that is scheduled to start next year and run to 2015.
“We are looking at a timeline of three years beginning early next year. By 2015, we hope to have a new refinery operating at an optimum capacity,” said Patrick Nyoike, the permanent secretary in the ministry of Energy.
He spoke Wednesday when KPRL signed an agreement with Standard Chartered Bank. The bank will be the financial advisor to KPRL for the project.
He, however, said the Government would not revise the protectionist policies on KPRL, which means oil marketers will still be required to get a substantial amount of fuel for resale in the country from the refinery.
The modernised refinery is expected to produce four million metric tonnes of petroleum products annually. They include super petrol, diesel, kerosene and liquefied petroleum gas.
It currently produces 1.6 million metric tonnes a year. Local demand is estimated at six million tonnes.
The deficit will be bridged by private imports of refined products by oil marketers. KPRL chief executive Bimal Mukherjee said other than increased refining capacity, the new facility would increase production of high value products and ensure products comply with international environmental standards.
He added that the modernised refinery would also generate electricity for its own use and reduce reliance on power from the national grid that has in the past been blamed for major break-downs.
Earlier estimates had projected the modernisation of KPRL to cost Sh90 billion.
As the financial advisor for the project, Standard Chartered will determine the costs as well as structure the transaction and raise financing for the project. This includes modalities of financing acquisition of crude oil.
“We will help KPRL structure and package the modernisation plan in a way that it will meet the standards of international lenders,” said Neil Van Niekerk, the bank’s director for project and export finance in Southern and Eastern Africa.