East Africa’s refinery rivals take on Dangote - Semafor

Aliko Dangote’s planned refinery on Kenya’s Lamu Island will likely have to rely on seaborne imports for crude supplies as Uganda remains non-committal on the project, instead pledging its oil to refineries in Uganda and Tanzania. Against the backdrop of diplomatic tensions between Kenya and Uganda over oil partnerships, the situation points to a race to see which country will be East Africa’s dominant energy hub.

Kenyan government officials previously pointed to Uganda, South Sudan and Kenya as potential key sources of the crude required to ensure the refinery operates at full capacity.

Uganda National Oil Corporation (UNOC) chief corporate officer Tony Otoa told Semafor that the country, which is set to begin commercial oil production in coming months, was betting on two key refinery projects to anchor the region’s energy infrastructure. Chief among them is the $20 billion Tanzania refinery and energy complex, to be supplied with crude from Uganda through the $5.3 billion East African Crude Oil Pipeline (EACOP), which he said would support regional fuel demand and international exports. The Lamu and Tanzania refineries will compete directly in supplying refined petroleum products across the East African region.

Otoa also said the 60,000 barrel-per-day Hoima refinery planned for northern Uganda would primarily serve Uganda and the regional market.

“The two refineries [Hoima and Tanga] will complement each other in making sure we have energy security in the region. They won’t compete”, Otoa said. “I can’t speak for Lamu.”

Seaborne imports from markets including the Middle East, while a viable option, present several complications — not least price volatility due to factors including the Iran war, and the fact that Lamu Port currently lacks operational oil storage terminals.

Uganda broke ground on Friday on a 320 million liter fuel capacity storage terminal in the capital Kampala to handle regional and national fuel reserves. Otoa said that landlocked Uganda, which currently imports its fuel and most goods through Kenya and Tanzania, was betting on the infrastructure “to transition from importing products to supplying the region.”

Besides Uganda, the other East African supply routes remain distant prospects for Dangote’s Lamu refinery. With commercial production yet to begin in Kenya’s oil fields, and the South Sudan pathway also looking unlikely due to lack of progress on the development of a new pipeline, the Lamu refinery could be forced to rely on volatile international markets for crude supplies.

East African countries have been invited to take up a 30% stake worth around $1.5 billion in the Dangote Refinery. Rwanda’s President Paul Kagame confirmed early talks regarding a potential investment while Ethiopia is reportedly also interested.

Dangote Industries was yet to respond to queries from Semafor on the feedstock challenges and whether the competition with Tanga refinery would affect investor appetite in the debt and initial public offering IPO financing being lined up for the project.

For Dangote’s balance sheet and investor appetite, the concerns on feedstock may be overstated. After all, Dangote’s Lagos refinery ran into significant domestic supply challenges despite Nigeria’s position as Africa’s largest oil producer, but tapped into seaborne imports from different international markets to ensure the plant runs at full capacity. Lamu’s deepwater port means it can handle massive oil tankers from around the world, although potential price volatility due to external factors like the Iran war raises additional questions.

The push and pull is indeed an indicator of regional supremacy battles in East Africa. Uganda and Kenya were originally supposed to build a pipeline together to get the oil from Lake Albert to Kenya’s Lamu Port. But the plan was abandoned in favor of the EACOP pipeline with Tanzania, which was 91% complete as of August.

The Dangote Refinery in Lamu was initially slated for Tanga, Tanzania according to Kenya’s President William Ruto. It was moved to Kenya amid questions from Tanzania’s government over the plan, with Dangote Industries citing Lamu’s deepwater port as a key strategic advantage. Months later, Tanzania and Uganda announced the Vitol-backed $20 billion energy complex, setting up a direct competitor for the Lamu refinery.

What is undeniable is that Uganda is bound to take up a much more influential role in East African geopolitics, thanks to its leverage from its oil sector and recent investments including taking up a 20% stake in Kenya Pipeline Company — which distributes petroleum products across East African countries including Uganda, DR Congo, Rwanda and Burundi.

Project management and engineering consultancy EIL, this week revealed that the Lamu refinery would be designed to handle a “wider crude basket” - allowing it to alternate between different international and regional crude types. The disclosure was made in a filing on the Mumbai Stock Exchange on Tuesday revealing the state-owned company’s $450 million contract to oversee the project.

The Lagos refinery, which was also developed by EIL, makes up for inadequate domestic supplies by importing crude from several countries across different regions - including the United States, Angola, Brazil and the United Arab Emirates (UAE). Dangote Group is planning a massive expansion to double the refinery’s processing capacity to 1.4 million bpd by 2029.

Engineers India Limited (EIL) — the Indian state-owned engineering consultancy that developed Dangote’s Lagos refinery — on Tuesday disclosed a $450 million project management and engineering services contract for the Lamu project. Africa Finance Corporation CEO Samaila Zubairu on Thursday also held talks with Dangote and Kenya’s president on the sidelines of the United Nations General Assembly (UNGA) in New York. The meeting pointed to potential funding for the Lamu project from continental multilateral development banks and development finance institutions, which were key in financing Dangote’s $20 billion Lagos refinery.

Ruto later toured Dangote’s Lagos refinery ahead of the groundbreaking ceremony, with construction equipment also docking at Lamu Port ahead of the construction.