Experts Raise Fresh Concerns Over Sh2.59 Trillion Dangote Lamu Refinery Ahead of Groundbreaking

Experts have raised fresh concerns over the proposed Ksh2.59 trillion Dangote oil refinery in Lamu, questioning whether the project can secure enough crude oil, financing, and supporting infrastructure to operate successfully.

The concerns come weeks before billionaire Aliko Dangote is expected to break ground on the refinery, which is planned for completion by 2030 and expected to have a processing capacity of 700,000 barrels of crude oil per day . Dangote confirmed the groundbreaking ceremony will take place on September 30 .

Crude Oil Supply: The Biggest Hurdle

Unlike Nigeria, where Dangote built his flagship 650,000-barrel-per-day refinery, Kenya currently has no commercial-scale crude production . This presents a fundamental challenge for the Lamu project.

President William Ruto’s economic adviser, David Ndii, has estimated that East Africa could provide more than 600,000 barrels of crude oil per day, with South Sudan supplying about 350,000 barrels, Uganda 250,000 barrels, and Kenya 120,000 barrels . However, accessing this crude is not straightforward:

• Uganda’s oil is expected to flow to Tanzania through the East African Crude Oil Pipeline (EACOP), meaning Ugandan barrels would need to be shipped onward by sea rather than piped directly to Lamu .
• South Sudan’s exports currently pass through Sudan, where insecurity has disrupted oil flows, and a proposed pipeline linking South Sudan fields to Lamu remains a distant prospect .
• Kenya’s Turkana fields, pencilled in for 120,000 barrels per day, have yet to produce a barrel commercially .

“That leaves the coastal facility dependent on a volatile international seaborne market,” warned oil and gas lawyer Maximillian Ezeude . The nearest large source of seaborne crude imports is the Middle East, where regional conflicts are disrupting exports .

Financing Challenges

Dangote Group plans to finance the refinery through internal cash flows, bonds, and an initial public offering, while seeking equity participation from East African countries . The company has offered regional nations a combined 30% equity stake, with Kenya considering a 10% stake valued at approximately $500 million .

However, analysts warn that raising the required capital could prove difficult. Petroleum economist Kaase Gbakon noted that the Dangote Group is seeking about $40 billion for announced energy projects between 2025 and 2030, including the Lamu refinery .

“Given that the group is seeking some $40 billion (including Lamu) between 2025 and 2030 for announced energy projects, raising the capital for Lamu could become a formidable challenge,” Gbakon said .

“The size of the debt requirement, ESG-related financing constraints and competition for capital all increase execution risk,” energy analyst Benjamin Oluwatobi Ajayi added .

Infrastructure Gaps

The refinery will be built within the Lamu Port-South Sudan-Ethiopia Transport (LAPSSET) special economic zone . However, experts have pointed to significant gaps in supporting infrastructure:

• Crude storage facilities at Lamu remain largely unbuilt, though the LAPSSET Corridor project makes provision for storage terminals of 1 million to 1.5 million barrels .
• Marine infrastructure required to handle large shipments, including facilities capable of handling Suezmax-class vessels, remains undeveloped .
• The LAPSSET SEZ masterplan is still being developed, with plans for industrial, commercial, and residential zones .

Legal and Environmental Concerns

Lamu is a UNESCO World Heritage site, and a project of this scale will require multiple approvals under various Kenyan laws, including the Petroleum Act, Energy Act, Environmental Management and Co-ordination Act, and others . Kenya’s courts have twice intervened in comparable Lamu infrastructure projects, halting a coal plant’s environmental licence and awarding Sh1.76 billion in compensation over the Lamu Port project .

Local residents have also expressed concerns about the lack of public participation and consultation. “We’re unhappy with the way the matter is being handled,” said Mohamed Athman, Executive Director of the Lamu Marine Forum, noting they had only learned about the project through the media .

Government Support

Despite these challenges, President William Ruto has backed the refinery as a major investment that could reduce Kenya’s reliance on imported petroleum products . Kenya spent roughly $4 billion (Sh511.5 billion) on petroleum products last year — the country’s top import .

“We have to make those decisions that will change our country, that will transform our country,” Ruto said of the Lamu project . The project is expected to create about 60,000 jobs .

Key Takeaways