Ruia Group firm Essar Oil and Gas Ltd is all set to acquire a 50 per cent stake in Kenya Petroleum Refineries, Kenya`s only refinery, after the government cleared way for Essar's acquisition of  a majority stake in the Mombasa-based refiner.

Energy minister Kiraitu Murungi said on Wednesday that the government will waive its pre-emptive rights and allow Essar to acquire 50 per cent of the Mombasa-based Kenya Petroleum Refineries Limited.

''The new minister for finance has decided that the original arrangement of the private companies proceed and treasury is currently negotiating with Essar,'' Murungi told reporters after addressing delegates at the Euromoney International Investment Conference in Nairobi.

Essar had successful bid for the combined shares of the three oil majors - BP and Shell Petroleum Company (each with 17.1 per cent) and Chevron Africa Oil Holdings Ltd (15.8 per cent) - when the Changamwe-based factory was put up for sale as far back as December 2007.

Essar beat four other bidders for the stake but the Kenyan government invoked its pre-emptive rights preventing the conclusion of the deal.

The remaining stake will vest with with the Kenyan government. Essar, which was chosen over Libya`s overseas oil refiner Tamoil SA for the stake, will upgrade the Kenya`s only refinery at a cost of $400-450 million.

The stake sale is part of a process of a multi-million shilling upgrading of the over 40 year-old refinery.

The Mombasa refinery, the only refinery in Eastern Africa, currently produces liquefied petroleum gas (LPG), gasoline, diesel, kerosene and fuel oil.

Kenya also plans to invest more in renewable sources of energy, Murungi said, adding that he will be seeking Sh10 billion in the next fiscal year for the newly formed Geothermal Development Company to use in geothermal power exploration in the country.