Why Dangote decided to build mega oil refinery in Lamu

Aliko Dangote's proposed East African mega-refinery, estimated at USD15 to 17 billion, has set off intense debate in regional boardrooms. One question dominates: If Tanzania hosts the newly completed East African Crude Oil Pipeline (EACOP) from Uganda, why did Dangote pick Kenya over Tanga?

To the casual observer, proximity to crude looks decisive. It is not. In modern refinery economics, market depth, land capacity, and logistical speed consistently outvote raw upstream resources, and on the numbers, the strongest site in East Africa is neither Tanga nor Mombasa. It is Lamu Port, at Kililana.

Start with the illusion of proximity. The 216,000 barrels a day flowing through EACOP are contractually committed to the pipeline's backers, principally TotalEnergies and China National Offshore Oil Corporation (CNOOC), and destined for international markets.

Dangote could not tap that stream without unpicking multi-billion-dollar contracts. Ugandan crude is also so heavy and waxy that it requires the world's longest electrically heated pipeline just to keep flowing. And Uganda is, in any case, building its own 60,000 barrels-per-day refinery at Hoima, serving domestic demand at the source.

There is also a scale mismatch. A 700,000-barrels-per-day refinery dwarfs East Africa's entire output and must run on a continuous blend of lighter grades from West Africa, the Middle East, and the Americas. Therefore, the winning site is the one that receives the world's largest tankers at a much lower cost.

That is Lamu. The port has a natural depth of 17.5 to 18 metres, compared with roughly 15 metres at Mombasa and shallower water at Tanga. The depth is sufficient to berth the world's largest supertankers fully loaded, with no dredging and no costly offshore cargo transfers. That translates directly into the cheapest imported crude in the region. Onshore, Lamu offers vast undeveloped industrial land beside the port, space that densely built Mombasa cannot provide.

Lamu is also the terminus of the LAPSSET corridor. The planned Lokichar–Lamu pipeline would deliver Turkana crude to the coast, while the envisioned Juba–Isiolo–Lamu line would transport South Sudanese crude away from volatile routes through Sudan, allowing the refinery to convert discounted African crude into high-value fuels along our own coastline.

From an international trade perspective, Lamu Port should be designated a Special Economic Zone (SEZ) to shift the case from physical to financial, unlocking tax holidays, VAT relief, and duty-free import of heavy machinery.

Lamu was built as a transshipment hub, a port where cargo lands and moves directly to other markets, and should remain that way, complementing rather than competing with Mombasa further down the coast.

Within a customs-bonded SEZ, Dangote could import global crude, refine locally, and re-export petrol, diesel, and jet fuel without tariff friction. A refinery of this scale would anchor a wider cluster of petrochemical plants, bulk oil marketing and logistics operators, and global retail fuel networks at Kililana.

Secondly, the government should consider engaging a first-rate engineering consultant to develop a comprehensive master plan for the precinct, drawing on the best case studies, including Singapore's Jurong Island and Qatar's Ras Laffan, and deliberately planning for future growth. Utilities, jetties, pipeline corridors, and land for expansion must be mapped before the first investor breaks ground, not retrofitted afterward.

Such a plan should demarcate the port into seven zones: Petroleum and bulk liquids (Zone A) anchoring the refinery and tank farms; a bunkering interface (Zone B) serving vessels on the Indian Ocean trade lanes; a tuna fisheries basin (Zone C); a processing SEZ (Zone D) for value addition; an artisanal and community zone (Zone E) protecting local livelihoods; a conservation and heritage buffer (Zone F) safeguarding Lamu's ecosystem and cultural patrimony; and a logistics and common-user zone (Zone G) knitting the precinct together. Zoned this way, the refinery, the fishing community and Lamu's heritage need not be in conflict.

Zone C deserves special emphasis because one industry the government must promote immediately is tuna. Kenya's waters sit astride the Western Indian Ocean tuna belt, a fishery worth billions of dollars a year, yet almost all of that catch is landed and processed elsewhere because we lack the infrastructure to capture it.

Modern landing quays, cold storage, and processing plants within the SEZ would enable Kenya to finally claim its share of this multi-billion-dollar resource, pairing blue-economy jobs with the energy precinct next door.

Kenya then wins on distribution and depth. The Kenya Pipeline Company's multi-product network, with assets valued at more than Sh127.8 billion, pumps fuel to depots that feed Uganda, Rwanda, Burundi, and the DR Congo, while Tanzania still relies on slow, high-risk road trucking.

Add the region's deepest banking and insurance markets, an independent judiciary, enforceable international dispute rulings, and a free foreign exchange regime that lets investors take their profits home, and no neighboring jurisdiction can match the package.

For the Dangote Group and our policymakers, Lamu is not merely an alternative. It is the structurally superior option. Landing this refinery would finally fulfill the port's original design intent and position Kenya as East Africa's refining and transshipment capital. The lesson for African infrastructure planning is broader than a single project: Superior logistics corridors will always outweigh proximity to raw materials.

Dr Saroni is the Chief Executive Officer of AfriTrade Consulting Group, a Nairobi-based advisory firm that has structured several of Kenya's Special Economic Zones, including Dongo Kundu, Vipingo and Naivasha.