Billionaire Aliko Dangote is determined to duplicate Africa’s largest oil refinery on the other coast of the continent, less than three years after overcoming rising costs, marshy terrain, and limited infrastructure to establish it in Nigeria.
However, the construction of his company’s proposed new 700,000-barrel-per-day Lamu refinery in Kenya is expected to introduce a whole new set of problems, not the least of which is how to secure crude supply in a nation that currently has no commercial output, unlike oil-rich Nigeria.
Plans are changing rapidly. Tanzania was the main topic of debate for Dangote’s East African refinery until April.
A month later, Dangote told the Financial Times that he was considering locating the plant in Mombasa, Kenya.
However, an executive stated in July that it would be constructed in Lamu, a deep-water port that is essential to the refinery’s success.
The business intends to finish the refinery by 2030 and will host a groundbreaking ceremony at the end of this month. According to Aliko Dangote, the estimated cost is between $15 and $16 billion.
The research aims to determine whether a region with fewer crude resources and less established energy infrastructure can replicate the paradigm that enabled Nigeria to transition from a significant fuel importer to a growing exporter.
Devakumar Edwin, vice president of Dangote Industries, responded that there were no obstacles to overcome when asked about possible regulatory, financial, and feedstock issues for the project.
According to the company’s prior statements, the project will improve regional fuel supply and energy security.
But “if not successfully implemented, it runs the risk of becoming a very expensive white elephant,” according to Oxford Economics senior economist Brendon Verster.
CAPITAL INCREASE
Dangote Group intends to finance the Kenyan refinery through internal cash flow, bonds, and an initial public offering, according to a July statement from a business executive.
Dangote is preparing the largest-ever initial public offering (IPO) of its Lagos refinery in Africa.
Dangote might also include a combination of his own stock, commercial bank loans, and development finance organizations like Afreximbank if he follows the Lagos model.
However, the business already has significant growth ambitions; on Monday, it announced that it would invest $14.3 billion to increase the processing capacity of its plant in Lagos.
According to observers, Dangote is already pursuing several oil-related projects, so securing funding may be difficult.
According to Kaase Gbakon, a petroleum economist who previously worked for the state-owned Nigerian oil giant NNPC, “raising the capital for Lamu could become a formidable challenge given that the group is seeking about $40 billion (including Lamu) between 2025 and 2030 for announced energy projects.”
Dangote has also proposed that East African countries, including Rwanda, South Sudan, Tanzania, and Uganda, take up a combined 30% equity stake, which would provide another funding stream and bind governments to the project, though no specifics have been provided on possible agreements.
SOURCES OF CRUDE
According to Kenyan media sources, the facility might obtain 600,000 barrels of crude oil per day from East Africa, including South Sudan, Uganda, and Kenya itself, according to Kenyan President William Ruto’s main economic adviser.
However, none of those sources are simple. Although small-scale production is anticipated later this year, Kenya has demonstrated oil reserves but has struggled for years to begin producing.
A planned crude pipeline connecting reserves in Kenya’s Lokichar Basin to Lamu Port and South Sudan, whose oil exports have been hampered by unrest in neighboring Sudan, is still a long way off.
Maximillian Ezeude, an oil and gas lawyer in Lagos, said that South Sudan’s exports flow through Sudan, while Uganda’s barrels are sent to Tanzania via the EACOP pipeline.
As a result, the coastal infrastructure is reliant on an unstable international seaborne market, according to Ezeude.
The Middle East, where the Iran war is interfering with exports, is the closest significant source of seaborne crude imports.
There are currently no functioning oil storage terminals near Lamu Port, and the refinery will be constructed inside the Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) special economic zone.
The LAPSSET Corridor project includes maritime loading facilities that can accommodate ships up to the Suezmax class, as well as oil storage terminals in Lamu that can hold one million to 1.5 million barrels.
The LAPSSET Corridor project includes maritime loading facilities that can accommodate ships up to the Suezmax class, as well as oil storage terminals in Lamu that can hold one million to 1.5 million barrels.
But the infrastructure is still mostly unconstructed.
THE PRESIDENT SAYS THE PROJECT WILL SPUR GROWTH.
Concerns have also been raised about how the refinery would affect Lamu Old Town, which is located 10 km (6 miles) from Lamu Port and is a World Heritage site.
Due to worries over habitat destruction and maritime pollution, Greenpeace Africa has also demanded that the project be put on hold.
Kenya, whose only refinery was shut down by India’s Essar Energy in 2013, believes the new plant will eliminate expensive fuel imports and promote growth, according to Ruto.
According to official figures, the nation’s largest import, petroleum goods, cost about $4 billion (511.5 billion Kenyan shillings) last year.
Regarding the Lamu project, Ruto stated, “We have to make those decisions that will change our country, that will transform our country.”
However, according to Lagos-based energy researcher Benjamin Oluwatobi Ajayi, the project’s issue “remains substantial.”
“Execution risk is increased by the size of the debt requirement, ESG-related financing constraints, competition for capital across multiple projects, and the need to coordinate numerous lenders and stakeholders within a compressed timeframe,” he stated.
