In a bold assertion, a prominent oil exporter in Kenya has declared that it remains unfazed by Uganda's ambitious $4 billion oil refinery project. Recently, the Uganda National Oil Company (UNOC) entered into a substantial agreement with Alpha MBM Investments LLC, a Dubai-based firm, to construct this significant refinery.
Under this agreement, UNOC will possess a 40% stake in the refinery, while the remaining portion will be held by Alpha MBM Investments LLC. This development has captured considerable attention from various stakeholders in the oil sector, not just within Uganda but across the wider East African region. Notably, the Kenya Pipeline Company has indicated that this new venture does not pose any threat to its operations.
Once operational, the refinery located in the Albertine Graben is expected to produce 60,000 barrels of crude oil each day. This capacity is projected to significantly reduce Uganda's annual petroleum product import bill, which currently stands at around $2 billion (approximately Sh 258 billion), largely sourced through imports from Kenya.
On the flip side, the Kenya Pipeline Company's plans for a refined petroleum products pipeline linking Eldoret, Kampala, and Kigali could face the most substantial challenges once the refinery begins its operations. However, Joe Sang, the managing director of Kenya Pipeline, has confidently dismissed these concerns. During a media briefing regarding their Initial Public Offering (IPO) in Nairobi, he stated, "Uganda's refinery is not a threat; it will take up to 15 years for Uganda to begin refining oil."
Kenya Pipeline is in the midst of a public offering process, making 11.81 billion ordinary shares available for purchase at Sh9 per share, representing a 65% equity interest in the company. According to the IPO information memorandum, funding for these investments is anticipated to come from a mix of internally generated cash flows and innovative financing solutions, including access to debt capital markets, special purpose vehicle (SPV) project financing, joint ventures, and partnerships.
Currently, approximately 90% of Kenya Pipeline's refined petroleum—around 2.5 billion liters annually—is exported to Uganda, establishing it as the company's primary transit market for petroleum products. Despite the potential for Uganda's refinery to alter the landscape, Kenya Pipeline is optimistic about maintaining Uganda's import of refined goods for the foreseeable future.
In an insightful statement, Kenya Pipeline emphasized, "Even when refining capacity becomes a reality, global oil markets are fully integrated. Thus, there are no isolated regional markets for oil; all oil competes on a global scale based on production capabilities and economic efficiencies."
They further elaborated that it would take considerable time for the consumption levels in the Eastern African regional market to reach a point that could justify the scale of crude refining necessary to compete effectively in the best global oil markets.
