Dangote Group has offered East African countries a 30 percent equity stake in its planned regional refinery, with Kenya expected to take up a 10 percent share valued at about $500 million (KSh64.5 billion).
Kenya’s commitment was disclosed by President William Ruto’s economic adviser David Ndii during the Mwango Capital Markets Forum on August 20, where he said the regional investment would involve about $1.5 billion in total equity.
Ndii said Kenya, Ethiopia and Rwanda were expected to participate in the investment, while Uganda’s position remained uncertain as it continues with plans for its own refinery.
“He has offered us and other East African countries 30% investment, so we are taking up ours. But there are some diplomatic kind of things we need to manage with our neighbors; I don’t need to go into the EAC political stories. But I think the potential partners there are us, Ethiopia, definitely on board, and Rwanda. Uganda is 50-50,” he said.
David Ndii Puts Kenya’s Dangote Refinery Stake at $500M
According to the economist, the refinery would not require Dangote to raise financing from the market because the company would finance the project from its balance sheet.
Ndii added that Kenya could also backstop the investment if some of the participating countries failed to take up refined petroleum products from the facility.
On whether Kenya would commit to being the first buyer of products from the refinery, including diesel and petrol, Ndii said the project made economic sense because the region already imports large volumes of refined petroleum products while preparing to export more crude oil.
He said the region currently buys about 20 million litres of petroleum products, while countries including Uganda are preparing to export crude.
Uganda, he explained, is exporting about 200,000 barrels, while Kenya is also seeking to increase its crude exports and could eventually reach about 120,000 barrels a day when it secures the required capital.
Ndii said the region had the potential to produce about 600,000 barrels of crude oil per day, raising the question of why it would export crude while continuing to import refined petroleum products.
“The reason why it’s happening is that we are buying 20 million liters in the region of products, final products, okay? We’re about to start exporting crude. Uganda is exporting 200,000; we are starting with… we are upping that, Ghana as well, I think, beyond that level.
We probably want to hit about 120,000 barrels once we have the capital. So if you look around this region, we probably will be… we have potential to do about 600,000 barrels a day,” he said.
He argued that securing refined products from the regional refinery would therefore be a strong value proposition for Kenya, provided it purchased the products at the prevailing border price.
Ndii said Kenya currently incurs about $2 billion annually in shipping and insurance costs associated with importing petroleum products, in addition to the ex-refinery price premium and traders’ margins.
According to him, savings from reducing those costs alone could provide a significant payback for the refinery investment.
About the Oil Refinery
Dangote’s group plans to finance a proposed 700,000-barrel-per-day oil refinery in Kenya using internal cash flows, bonds, and an initial public offering (IPO).
If completed, the refinery will be built on Lamu Island and is expected to become East Africa’s largest refining project, supplying refined petroleum products to Kenya and neighbouring countries while reducing the region’s dependence on imported fuels.
The project will also advance Aliko Dangote’s ambition to expand refining capacity across Africa following the launch of his 650,000-barrel-per-day Dangote Petroleum Refinery in Lagos, Nigeria.
The proposed Lamu refinery would mark the Dangote Group’s largest refining investment outside Nigeria and based on its estimated value, would rank as Aliko Dangote’s second-largest investment in Africa, behind only the Dangote Petroleum Refinery and Petrochemicals in Lagos.
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PHOTO/ Dangote Group
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