Oil Marketer Says Africa Needs to Refine its Oil

Posted by Michelle Howard
Monday, April 14, 2014

Ethiopia's leading private oil marketer plans to expand into neighboring east African economies and is interested in part financing a refinery after commercial discoveries in the region.

Tadesse Tilahun, CEO of National Oil Ethiopia, said untapped crude deposits in Kenya and Uganda handed governments and investors the opportunity to construct a refinery able to compete with cheap imports from India, the Gulf and beyond.

Doing so would help African countries extract more value from their resources and cut their import bills, Tadesse said.

"Africa's demand for refined products is growing hugely because of its economic growth. The crude findings are also increasing. That is the opportunity," Tadesse said in Addis Ababa as part of the Reuters Africa Summit.

"We want to (build) a refinery. We have already discussed this in principle with our shareholders, who are very much committed."

National Oil's (NOC) shareholders include Saudi billionaire Mohammed Hussein Al Amoudi, whose investment portfolio in construction, gold, hotels and energy has helped amass an estimated fortune of over $15 billion, according to Forbes.

Tadesse said other private and public investors would need to come on board.

Eastern Uganda has become the latest frontier in the global hydrocarbon hunt after gas finds off Tanzania and Mozambique and oil discoveries in Uganda and Kenya.

Even so, Sub-Saharan Africa faces headwinds supplying more of its own refined petroleum products. Regional cooperation and funding for oil-related infrastructure are proving slow, while foreign oil refiners and traders are flooding the $80 billion market with imports.

Existing pipelines also tended to run to the coast, Tadesse said, either for the export of crude or the import of refined products from small-scale refineries found near ports.


"That has to change," Tadesse said. "Refineries are now needed inland so that Africa can supply itself."

Tadesse acknowledged the price tag was problematic for many African countries. Oil production in Uganda has been delayed in part due to a row between the government and investors over the size - and thus cost - of a refinery in the country.

"It would be in our own interest, for all countries in this area, to have a common refinery, a joint facility, where we can take our own product," Tadesse said.

Kenya plans - but has made little progress towards - a new $2.8 billion refinery on its northern coast. Industry experts say Ugandan and Kenyan oil exports could reach 500,000 barrels per day - oil Tadesse would rather see stay in the region.

Founded in 2004, NOC now claims a 35 percent share of a market tightly controlled by the Ethiopian state. So too are other key sectors including banking, retail and telecoms, which the government says need shielding from foreign investors while the economy diversifies away from its agricultural base.

Tadesse said NOC had secured a license for fuel stations in neighbouring Djibouti and targeted expanding its downstream operations into Kenya within five years. Plans to enter South Sudan have been shelved due to the four-month conflict there.

"We want to be a regional player," Tadesse said.

Oil consumption has doubled in 10 years in Ethiopia, one of Sub-Saharan Africa's fastest-growing economies and now the region's fifth-largest after leap-frogging Kenya.

Demand for oil in Ethiopia is seen tripling by 2025, indicative of the economic transformation under way in Africa's second-most populous nation which is still better known abroad for the famine of 1984 and communist-era purges.

But the pace of NOC's expansion at home hinges on the government relaxing its grip on the industry.

Tadesse said the government imported all fuel products and set the market price, allowing fuel stations a margin of just 4 Ethiopian cents - roughly 0.2 U.S. cents - per litre. Land rights issues also hindered growth.

"In no way can that be attractive to investors," he said.

(By Aaron Maasho; Writing by Richard Lough; Editing by Susan Fenton and David Evans)

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