Lamu refinery set for September 30 groundbreaking as Dangote IPO opens in Lagos

A section of the oil lines connecting Kenya Petroleum Refineries Limited to various oil marketers in Mombasa. [File, Standard]

President William Ruto's ambitious plan for a second Dangote refinery in Lamu received a major boost yesterday when Nigerian backer and Africa's richest man Aliko Dangote confirmed that ground-breaking could start as soon as this month, even as Kenya advances its own separate plans to begin commercial oil production in Turkana by December.

Dangote Industries has set September 30 for the groundbreaking of the planned Sh1.95 trillion ($15 billion) oil refinery in Lamu, Kenya, with construction expected to take about three years.

The project is designed for a capacity of about 700,000 barrels per day and is expected to serve Kenya and regional fuel markets.

Africa's biggest oil-refining business will start work on its second facility on Kenya's coast at the end of the month, with the complex set to be ready in three years.

Dangote made the announcement about the planned processing plant at Lamu during the opening of the initial public offering (IPO) for his energy business in Lagos, Nigeria's commercial capital.

Financial Standard earlier learned that the IPO is structured as a single global offering covering both the Nigerian refinery and the proposed Lamu asset, meaning the Kenyan project will directly benefit from the IPO proceeds.

An IPO is the first sale of shares in a company to the public, allowing ordinary and institutional investors to buy a stake in the business. The IPO for Dangote Petroleum Refinery and Petrochemicals FZE is the continent's largest.

A barrel is about 159 litres, so the Lamu plant would process more than 111 million litres of crude oil daily. That is larger than the refining capacity of many African countries.

Crude oil is the raw, unprocessed oil pumped from the ground. Refined products are the finished fuels motorists use, such as petrol, diesel, kerosene and jet fuel.

The refinery would rank among Dangote's largest investments outside Nigeria and forms part of his broader expansion across Africa.

His Lagos refinery, with a capacity of 650,000 barrels per day, is being expanded to 1.4 million barrels per day.

Dangote has said lessons from Lagos helped reduce the estimated cost of the Lamu project to between Sh2.015 trillion ($16 billion), from an earlier Sh2.21 trillion ($17 billion).

Ruto has made the Lamu refinery a centrepiece of his industrialisation agenda.

In July, he confirmed he had reached an agreement with Dangote to proceed with the project.

"Kenya will now build the East African refinery here in Lamu, where we will need 60,000 young people to work," Ruto said then.

He said the refinery would position Kenya as a regional energy hub by supplying petroleum products to markets across East and Central Africa while reducing the region's dependence on imported refined fuel.

The Ruto government has allocated Sh21.5 billion as seed capital, initial money to get the project moving, and Deputy President Kithure Kindiki is coordinating the government's engagement with investors.

Dangote has offered East African countries a combined 30 per cent equity stake in the project.

Equity means ownership.

Kenya has been offered 10 per cent, valued at approximately Sh65 billion ($500 million).

The total for the region is about Sh195 billion ($1.5 billion).

Ethiopia and Rwanda have also expressed interest in participating.

The project will be financed through a 30 per cent equity and 70 per cent debt mix.

Separately, Kenya is pressing ahead with its own plans to develop crude oil in Turkana, a development that could complement the Lamu refinery.

Gulf Energy, which acquired Tullow Oil Kenya's assets, has confirmed plans to begin commercial production in Turkana's Block T6 and Block T7 by December 2026.

Chairman of Gulf Energy E&P Francis Njogu told a joint parliamentary committee in February that the company has set December 1, 2026, as its target to produce oil.

"We are very ready, and we have set 1st December 2026, as a target to produce oil, and we hope to expeditiously secure the FDP (Field Development Plan) ratification," Njogu said.

The company says it plans to invest about Sh780 billion ($6 billion) in the South Lokichar project, with recoverable reserves estimated at 560 million barrels.

Production is expected to start at about 20,000 barrels per day, with output potentially rising to 50,000 barrels per day in later stages.

If both projects succeed, Kenya would shift from being a country that imports all its refined fuel to one that produces its own crude and processes it domestically.

The Turkana oil would feed into the Lamu refinery, reducing the need to import crude and cutting the country's fuel import bill.

The refinery would then supply not just Kenya but seven other countries in East and Central Africa, generating export earnings.

President Ruto expects the combined developments to boost jobs, with the Lamu refinery alone projected to create 60,000 positions across construction, engineering, logistics and manufacturing.

Kenya would join Africa's small club of oil-producing and refining nations, strengthening its ambition to become a regional energy and logistics hub anchored on the Lamu Port-South Sudan-Ethiopia Transport corridor.

But significant hurdles remain.

Kenya's crude output from Turkana would be only a fraction of the refinery's 700,000-barrel-per-day capacity.

Gulf Energy's first phase targets 20,000 barrels per day, rising to 50,000, leaving the Lamu plant dependent on imported crude for the foreseeable future.

The Turkana project also faces infrastructure challenges in the absence of a new pipeline, with the Kitale-Lodwar highway frequently cut off by floods, threatening the trucking of crude to Mombasa.

Analysts have warned that the Lamu refinery could become a costly white elephant if crude supply, financing and construction are not well managed.

"Given that the group is seeking some Sh5.2 trillion ($40 billion) between 2025 and 2030 for announced energy projects, raising the capital for Lamu could become a formidable challenge," said Kaase Gbakon, a petroleum economist formerly with Nigeria's State-owned NNPC.

Environmental groups, including Greenpeace Africa, have called for a halt to the  Lamu refinery, warning that it threatens the coastal ecosystem and would lock Kenya into decades of fossil fuel dependence.

For Kenyan motorists and businesses, the payoff will depend on whether both the Turkana oilfields and the Lamu refinery are completed on time and whether they can be linked into a functioning domestic supply chain that delivers cheaper fuel.