Why Dangote refinery project risks straining unity in EAC

Nigerian billionaire Aliko Dangote. [Courtesy]

The groundbreaking of the Dangote refinery in Lamu today will set the ground for construction of what will be the biggest infrastructure project in the country so far. The Sh2 trillion project is expected to be a major boost for the economy of Lamu both during construction and afterwards, and has also been seen as key for the region.

Despite the scale and economic benefits, the Dangote refinery in Lamu is seen as among the key projects that have split East African Community member states and resulted in their pulling in different directions. It is among a series of recent major energy projects that EAC countries are building separately but which observers say would make more sense from both economic and political views if they were to be undertaken jointly.

The Nigerian billionaire Aliko Dangote had expressed interest in building a refinery similar to the 650,000 barrel per day facility he built in his home country and was initially set for construction on the Tanzanian coastline in Tanga.

President William Ruto, at a business conference in Nairobi earlier this year, announced plans for the Tanga refinery and President Yoweri Museveni of Uganda appeared to have been in agreement. A major problem, however, arose when Tanzania’s President Samia Suluhu claimed she was unaware and at some point asked Ruto to explain at a public forum how EAC countries decided to set up a joint refinery at Tanga.

Following the fallout, Ruto appears to have separately courted Dangote, who had expressed interest in building the Tanga Refinery, with Kenya appearing to have sold the advantages of Lamu as an ideal hub for the refinery.

This is even as Tanzania and Uganda got together and, in August this year, announced that they had partnered with Vitol Bahrain for the construction of the $20 billion energy complex that will also have a refinery in Tanga. The complex will be built around the East African Crude Oil Pipeline (EACOP), which will transport crude oil from Western Uganda to Tanga port for export. The pipeline is more than 90 per cent complete and expected to start exporting Ugandan crude by the end of this year.

An aerial view of the proposed Dangote Refinery plant site, marked in Red, near the Lamu port with three operational berths at Magongo, Lamu County. [File, Standard]

Additionally, Uganda is already at an advanced stage of building its own refinery in Hoima that is expected to have capacity for 60,000 barrels of oil per day. President Yoweri Museveni has in the past said the Hoima refinery would serve Uganda as well as parts of Tanzania and Kenya that are currently exposed to high fuel costs due to the logistics of moving petroleum products over land from either Mombasa or Dar es Salaam.

The Lamu refinery will largely be financed by the Dangote Group, which will have a 70 per cent stake, while the balance is expected to be held by the governments in the region. Kenya is expected to have a 10 per cent stake and will invest Sh64.7 billion in the project.

The Lamu refinery will have capacity to refine 700,000 barrels per day and is in comparison to the 20,000 barrels per day that the Lokichar oil fields will produce in the initial phase, increasing this to 50,000 barrels per day. Uganda expects its production to peak at 230,000 barrels per day. Opiyo Wandayi, Cabinet Secretary for Energy and Petroleum, this week said the Lamu refinery will rely on imported crude oil.

Gerishom Majanja, an energy economist who has worked in the oil sector for decades, said any mega infrastructure project in Kenya’s petroleum sector should have focused heavily on shielding Kenya and, to an extent, the region from external shocks.

He noted that the crisis in the Middle East that led to the closure of the Strait of Hormuz should have been top of mind for policymakers when making decisions on investments, public or private, going into the sector, especially of such a scale as the Lamu refinery. Other than the US attack on Israel, which at some point saw the pump price for diesel reach Sh240 per litre in Nairobi, Kenya’s downstream petroleum sector has been susceptible to weakening of the shilling.

Majanja argues that the Lamu refinery might not provide a cure for the country, as crude oil imports could still suffer in case the shilling weakens against major world currencies or other crises result in reduced production of crude oil among the Middle East producers or disruption of key shipping routes.

While Majanja welcomes the foreign direct investments, he also noted that this would further cede control of a strategic sector to foreign hands following the recent privatisation of the Kenya Pipeline Company (KPC).

Dangote Group President and CEO Aliko Dangote and President Ruto during a tour of the Dangote Refinery in Lekki, Lagos State, Nigeria. [PCS]

“The Lamu refinery is predicated on imported crude oil and this guarantees that we will continue to be exposed to the volatilities of international markets as opposed to building stability of supply using the resources that we have available and shield Kenya and the region from factors that are beyond our control,” said Majanja, who at one point sat on the board of the Kenya Petroleum Refineries Limited (KPRL).

Majanja is of the opinion that Kenya should have worked with other countries with oil resources in the region, including Uganda and South Sudan, in building a refinery, which would then use the resources that they jointly hold to secure the region from volatilities in global markets.

“Why can’t we build a refinery in Turkana where we have oil? The resources there might not be adequate, but again, why can’t we pull together resources in Uganda and South Sudan and refine the oil from the three countries? That would have been beneficial for all the economies of EAC,” he said, further noting that the Lamu refinery has been done hastily, having only been proposed in July and has not been subjected to industry and stakeholder engagement.

South Sudan exports its crude oil by pumping it through cross-border pipelines, each more than 1,500 kilometres long, running north through Sudan to Port Sudan on the Red Sea.

Majanja further said Kenya should have acted on the concerns that Uganda raised before the plan to build the Uganda-Kenya joint pipeline fell through. Uganda had decried the high cost of land in Kenya as well as lengthy land acquisition processes that always result in infrastructure projects taking long to commence.

“Our policymakers never considered our relations with Uganda.”

Oil and gas consultant Patrick Obath, in a recent interview, said the region would have benefitted immensely from their oil discoveries if they worked together. He noted that beyond refining crude to produce petrol and diesel, the real opportunity lies in developing a joint petrochemical complex, which, in addition to producing fuel, would also produce raw materials for industries as well as fertiliser, cutting reliance on imports.

Such a complex, he explained, needs to have a huge refining capacity, which can only be possible with cooperation among the oil producers in the region.

“The opportunity in Turkana oil, if we are to be serious as a country, is to convert it into higher value products. That would mean investing in – not a refinery – but a petrochemical complex. A refinery will only bring you to gasoline level and that is not value addition. Value addition is when you go from crude oil to products like propylene, ethylene (used as inputs in manufacturing), fertiliser, textiles and pharmaceuticals. That is where you really get value out of the hydrocarbon,” he said in an interview with Standard Group’s Spice FM.

“To do that, we need a facility with capacity to process about 400,000 barrels per day; that is the minimum economic size globally. At that level is when you really begin to become a petrochemical complex.”

He added that to get to such a scale, Kenya, Uganda and South Sudan should collaborate on a shared facility, though he acknowledges the political difficulty of such an agreement.

“We would have to talk about Kenya, Uganda and South Sudan... we would get to about 500,000 barrels a day and set up a facility that, when you look at the bigger region, would actually begin to add value and impact on the economies of those countries.”

He also noted that “a political discussion on that is not easy”, pointing to the strained relations within EAC and which resulted in the open disagreements between Presidents Suluhu and Ruto on the Tanga Refinery that eventually saw the two countries go on to plan their own refineries.

President William Ruto believes that the Lamu Refinery will still serve the region, noting that EAC member states would draw fuel from the refinery.

“We will have a refinery in Lamu that will unite about eight of our countries in the region. It will give us an opportunity for investment of Sh2 trillion and create employment opportunities for 60,000 young people who will work at the facility,” he said, adding that the refinery will earn the country foreign exchange but also save Kenya the money it spends on importing refined petroleum products. Kenya spent Sh528.8 billion on importing petroleum products in 2025, which was about a third of its total import bill of Sh1.65 trillion.

The groundbreaking this morning is proceeding despite the order by the Land and Environment Court, which on Monday halted its construction following a legal challenge by a section of Lamu residents over land ownership and compensation. The court directed that the status quo be maintained pending the hearing of the case by the residents on October 14.

Despite the concerns raised so far, President Ruto said the project would proceed, but said it would be done in a transparent manner.

Ruto accused critics of the project of frustrating investors seeking opportunities in Kenya by making unreasonable demands and imposing selfish conditions. Adding that the Government will not allow profiteers to derail the refinery project.

“They cannot stop this project. I will make sure it succeeds,” said the President yesterday during his tour of the Coast region.

“Investors need incentives, not conditions.”

It is not the first time that EAC countries have differed when it comes to energy mega projects.

Kenya and Uganda had at some point been in discussions to build the Uganda-Kenya Crude Oil Pipeline (UK-COP), meant to transport crude from Hoima in western Uganda through Lokichar to Lamu. The two oil fields using the same export pipeline were seen as

Tanzania, however, offered Uganda a better deal in terms of lower transit tariffs but also pointed out Kenya’s costly and lengthy land acquisition process that complicates and leads to major delays in infrastructure projects. This saw Uganda ditch Kenya and join Tanzania in the EACOP project. The pipeline is now nearing completion and Uganda expects to use it to export its first barrels of crude oil by the end of this year or early next year.

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