Kenya and Tanzania: the energy showdown between refineries and the new ‘Egyptian’ dam

NAIROBI – Nigerian billionaire Aliko Dangote favours a pragmatic approach to diplomatic and financial relations. Especially when the two overlap. His group announced in recent days its intention to sell a 30 per cent stake in the mega-refinery due to be built in Lamu to the governments of East Africa – a $17 billion facility that is (almost) identical to the one due to come on stream in Lagos in 2024. The governments of Rwanda and Kenya are already set to secure a stake, becoming co-shareholders in the project. Relations are not always so smooth.

Before and during Dangote’s latest bid, the refinery became the casus belli of a conflict between Kenya and Tanzania that was as indirect as it was evident: the launch of two refineries and energy hubs on their respective coasts, with investments of a similar scale and medium-term objectives. The latest chapter in a rivalry dating back to the years of decolonisation, which has just found a new outlet in the race to become the hub of choice in East Africa.

Kenya can look forward to ‘its own’ refinery in Lamu: a colossal project expected to cost $17 billion and operate at a rate of 700,000 barrels per day – a scenario praised by William Ruto’s government but contested by local organisations and activists due to the environmental disaster expected to befall a jewel of the Swahili coast. Tanzania responded in early August with a plan that appears to compete directly with Lamu’s ambitions: a memorandum of understanding signed with the Ugandan government and the energy trading giant Vitol Bahrain for an even more ambitious project. The Tanzanian-Ugandan project centres on a $20 billion hub at the port of Tanga, forming part of a supply chain that includes the very same refining, storage, logistics and distribution activities in East Africa that form the backdrop to the rival Lamu plant.

The timing of the announcement might already seem like a response to Kenya’s move to step up the pace. This becomes even more apparent when one considers the background to Tanga itself, the focus and cradle of the dispute that led to Tanzania’s counter-announcement. Originally, the Dangote refinery was due to be built in the Tanzanian port of Tanga, which Uganda, Kenya and Tanzania had earmarked as a regional hub: a further development following initiatives already underway on both sides of the divide, such as the East African Crude Oil Pipeline and the Lappset – respectively, a pipeline stretching over 1,400 kilometres between the Ugandan oilfields and the port of Tanga, and a logistics and energy infrastructure linking Lamu, Ethiopia and South Sudan, which sits on a basin containing an estimated 3.5 billion barrels of oil reserves.

The convergence was shattered by a diplomatic row, which erupted when Ruto himself announced the choice of Tanga, thereby irritating the Tanzanian leader Samia Hussan over the failure to consult her regarding her territory. The diplomatic chill deepened further after the Dangote Group’s choice shifted from Tanga to Lamu, effectively signalling Kenya’s overtaking of the competition and sparing Ruto himself from controversy over the ‘preferential’ stance he was accused of adopting by favouring Tanga at the expense of Kenyan ports such as Mombasa (which was subsequently overtaken by Lamu anyway).