Pipeline politics: Why East Africa's joint refinery dream faces slippery path

President William Ruto with his Tanzanian counterpart President Samia Suluhu Hassan in Tanzania. [PCS]

The consensus has always been that for their oil resources to make commercial sense, East African countries would need to pool and exploit the resource together.

It is perhaps against this that the presidents of Kenya and Uganda agreed to build a refinery in Tanzania, albeit seemingly a roadside declaration and one that was taken without consulting the would-be host nation. 

Analysts argue that no single East African country has an adequate oil resource to justify a standalone refinery but point out that combined, the oil discovered in Uganda and Kenya can be enough to feed one.

While Tanzania is yet to make viable oil discoveries, Tanga sits as a natural hub for refining with the Uganda-Tanzania Crude Oil Pipeline (EACOP) terminating at the city.

It is not clear how Kenya will deliver its oil to Tanga for refining but it currently plans to transport it using trucks and later trains from Turkana to Mombasa for export and could deliver it the same way to Tanga. 

In explaining why a refinery in Tanga would be ideal for the region, President William Ruto said Kenya, Uganda and other neighbouring countries would take the refined petroleum products and transport them using the already existing infrastructure of Kenya Pipeline Company (KPC).

KPC network of pipelines and depots is currently used to transport imported fuel from Mombasa to the rest of Kenya and further to Uganda, Rwanda, DR Congo and South Sudan.

While combined quantities and industrial opportunities make a case for the joint refinery, there are also concerns as to whether the East African nations can pull in the same direction, given their history of sibling rivalry that at times bordered on jealousy.

Additionally, Uganda is already at an advanced stage of building its own refinery in Hoima.

This is even as Tanzania is yet to discover viable oil resources, but instead has huge natural gas deposits that it might be more inclined to develop.

Environmentalists have also raised concerns about the impact that such an infrastructure project would have on sensitive marine life along the Tanga coastline.

Oil and gas consultant Patrick Obath, in a recent interview, said the region would benefit immensely from their oil discoveries if it worked together.

He noted that beyond refining crude to produce petrol and diesel, the real opportunity lies in developing a 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 the 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 April 16 interview with Standard Group’s Spice FM. 

“To do that, we need a facility with the capacity to process about 400,000 barrels per day, which 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 will probably, at best, produce between 150,000 and 200,000 barrels a day from Turkana. So to make that work, 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 sometimes strained relations within EAC and which may have been at play this week when President Samia Suluhu asked President Ruto to explain himself in announcing a refinery in Tanga without consulting Tanzania. 

It is not lost on many that the East African Crude Oil Pipeline (EACOP), which makes Tanga ideal for the refinery, was only possible after Tanzania convinced Uganda to ditch a similar project with Kenya.

The Uganda-Kenya Crude Oil Pipeline (UK-COP) was meant to transport crude from Hoima in western Uganda through Lokichar to Lamu.

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.

The Tanga refinery still lacks formal backing from Tanzania but there are claims that there is an agreement in principle.

When he announced in late April at an infrastructure conference attended by President Museveni, Ruto had explained that a refinery in Tanga would be complemented by a r pipeline from Tanga to Mombasa. 

This would then enable Kenya and Uganda to access fuel products from the refinery through the KPC systems, which would receive products at Mombasa and transport them to other parts of Kenya and Uganda. 

“The joint refinery in Tanga will benefit all of us because it will take on board the oil from Kenya, South Sudan, Uganda, and DR Congo. We will just need to build a short pipeline from Tanga to Mombasa and the finished product will use the (KPC) pipeline that we jointly own with Uganda. So all our assets become profitable,” he said.

During his visit to Tanzania, Ruto made a further pitch, noting that the project would create opportunities for the region, enabling it to make use of its oil resources to industrialise. 

“When I discussed with President Museveni, it was about how to industrialise our region using our resources. It is my belief and that of the leaders in our region that whatever raw materials we have should be used for the industrialisation of the region so that we can create wealth, jobs and expand opportunities here.”

Nigerian businessman Aliko Dangote had earlier said committed to playing a part in building the refinery but maintained the need to have the EAC governments on board.

“If we agree with three, four governments about the refinery, we will lead and ensure that the refinery will be built within the next four, five years… we will build one identical to the one we have in Nigeria of 650,000 barrels per day,” he said.

Uganda is also pressing ahead with a smaller refinery with a capacity to process 60,000 barrels of oil per day that will be located at Hoima.

President Museveni said 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.

Museveni, however, noted that Uganda backed the Tanga refinery and that it would still receive huge amounts of crude oil produced in Uganda.