Will the Revival of Mombasa Refinery Give Kenya Leadership in the Regional Petroleum Downstream Sector

By Mbatau wa Ngai

The expected refining of Kenya’s crude oil at Kenya Oil Refineries is a game changer for several reasons.

First, the fact that Yoweri Museveni Government has until now been unable to persuade the UK-based oil and gas exploration company, Tullow Oil, to build a refinery in Uganda might leave the country with no alternative but to import its refined products from Kenya.

There is reason to believe that market forces might force other regional countries, including Tanzania to import their refined petroleum products from Kenya. Tanzania and Uganda’s celebrations at having pulled a fast one on Kenya by building a crude oil pipeline to Tanga port could well prove no more than a pyrrhic victory.

Uganda’s case to build its own refinery is further undermined by the realisation that production costs of Kenya’s crude are so much lower that the country can afford to undercut Kampala’s bid to export its oil to other regional countries such as the Democratic Republic of Congo (DRC), Rwanda and Burundi.

The planned expansion of Kenya Pipeline to these countries would strength Kenya’s hand at the bargaining table. Second, refining its own oil shields the country from the effects of the volatile oil market whose capriciousness has almost bankrupted some oil producing countries in Africa and South America. This means the country’s industries—including its vulnerable national carrier, Kenya Airways– can make predictable business plans that would no longer be torpedoed by fluctuations in the global oil prices.

Admittedly, some of these industries might need more than cheaper oil prices to compete regionally and internationally. This is where the Government should consider stepping into the picture beyond building infrastructure. The billions of shillings the country is expected to save from the reduction in the import bill as oil imports account for about 14 per cent of the cost of all imports, could be channeled into refinancing restructured development institutions.

These include Industrial and Commercial Development Corporation (ICDC) and Industrial Development Bank (IDB). Their restructuring would ensure that they energetically pursue their renewed mandates which would be to put the country on the map of industrialized countries within a specified period by financing and mentoring local entrepreneurs.

The entry point could be dusting off the plans drawn up soon after independence whose aim was to substitute many imports that can be manufactured locally at competitive costs. In the light of the expected local refining of crude oil, a case could be made for the country to go full blast and build a petro-chemical industry. The production of all-things plastic would save the country billions of shillings currently paying for imports. The importation of tarmac could also be reduced considerably if not entirely eliminated.

Third, the local refining of crude oil signals the Government’s determination to add-value to the exports of the country’s raw products. This should be followed up by local processing of agricultural produce. In its quest to encourage value-addition to agricultural produce, the Government should turn a deaf ear to critics. And they will be many considering the large number of foreign firms and their local agents who have grown fat exploiting primary producers.

There is a growing body of evidence that suggests these primary producers would be more than willing to contribute their share in the building of factories that would add value to their produce. The growing number of tea and coffee factories that farmers are building are a clear testament to their willingness to go the extra mile as long as the promise is higher earnings.

The only fly in the ointment is that unscrupulous individuals—and they always lurk in the background—at times take advantage of the credulous farmers and sell them machinery that is all too often redundant and make promises they cannot keep.

This is particularly evident in the coffee sub-sector whose periodic rip-offs have forced the Government to regularly intervene by writing off loans. Perhaps, the Government might be persuaded to more closely monitor the whole agricultural sector even as it encourages value addition to ensure the farmers are not, as has happened so many times before, left holding the bag. Or is that too much to ask? Time will tell.

This article was first Published by The Standard

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