Why Dangote's Lamu refinery could face tougher problems than his Nigerian plant

Aliko Dangote plans to build a 700,000-barrel-per-day refinery in Lamu, Kenya, but funding and crude supply challenges may be harder than the problems that delayed his Nigerian plant.

Funding hurdles

The project comes less than three years after Dangote launched Africa's largest refinery in Nigeria, which faced rising construction costs, difficult terrain and poor infrastructure. A Dangote Group executive said in July that the Kenyan refinery would be financed through internal cash flow, bonds and an initial public offering. Funding could also come from equity, commercial bank loans and development finance institutions such as Afreximbank.

Analysts say raising that money may be difficult because Dangote Group is pursuing many energy projects at once. Kaase Gbakon, a petroleum economist and former official of Nigeria's state-owned oil company, said the group could require about $40 billion between 2025 and 2030 for its announced energy investments, including Lamu.

Dangote has suggested that Rwanda, South Sudan, Tanzania and Uganda could collectively take as much as a 30% stake in the refinery. That would provide another funding source while giving regional governments a direct interest. No firm agreements have been announced.

Crude supply concerns

Securing enough crude could prove even harder. Kenyan media have quoted President William Ruto's chief economic adviser as saying the refinery could source up to 600,000 barrels per day from East Africa, including Kenya, Uganda and South Sudan. But the region has significant supply limits.

Kenya has proven oil reserves but no commercial production yet, though limited output is expected later this year. A proposed pipeline connecting South Sudan's oil fields and Kenya's Lokichar Basin to Lamu Port has made little progress. South Sudan's exports have been disrupted by insecurity in neighbouring Sudan, while Uganda sends its crude to Tanzania through the East African Crude Oil Pipeline.

The alternative is importing crude by sea, with the Middle East the nearest major source. But disruptions linked to the Iran war are creating more uncertainty around regional oil supplies.

Infrastructure gaps

Lamu Port also lacks operational crude storage facilities. The LAPSSET project includes plans for 1 million to 1.5 million barrels of oil storage and marine facilities that can handle Suezmax vessels, but much of that infrastructure is yet to be built.

The proposed refinery sits within the Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) special economic zone near Lamu Port. Tanzania's richest businessman, Mohammed Dewji, has offered to invest $100 million in the proposed refinery. If successful, the refinery could transform East Africa's energy landscape, create thousands of jobs and cut reliance on imported refined products.