THIS article was published by Economic Intelligence Unit on July 25, 2013.
Ambitious plans for the Indeni Oil Refinery
An equity partner will be sought to take a 49 percentage stake in the Indeni Oil Refinery, where the government also wants to build additional capacity at a projected cost of US$410m.
The cabinet’s approval of a plan to sell a stake in the country’s sole petroleum refinery underlines an acceptance in government of the need to expand refining capacity and secure strategic national fuel reserves.
It is also a step towards sharing the technical and financial burden of operating the loss‑making facility, after Total, a French oil major, divested its 50 percent shareholding over two years ago.
The 24, 000‑barrel/day refinery has in recent years faced repeated shutdowns because of ageing machinery and systems failure.
Similar plans by the previous government failed because of the lack of a clear road map towards a sale and uncertainty over the role of an equity partner.
Similarly, this time there is little clarity on the sort of partnership the government favours.
The massive investment required for rehabilitation and expansion at Indeni suggests that an equity partner would want management control to recoup the investment.
In contrast, the government would also want to have management control because the facility is deemed to be of strategic national interest.
Nevertheless, the current government appears more determined than its predecessor to find solutions that will allow it both to locate a suitable equity partner and to raise the US$410m estimated cost for additional refinery capacity.
The Mines, Energy and Water Development Minister, Mr Christopher Yaluma, told the Post, a privately-owned newspaper, on July 18 that the government was looking at a financing model to include private equity, loans and Treasury funds for the project.
Expanding the existing Indeni infrastructure rather than building a new refinery elsewhere is aimed at speeding up the project and keeping costs down.
Pipelines that transport crude oil to Indeni from the Dar es Salaam port in Tanzania already exist. If implemented as planned, the new refinery would also have facilities to process Angolan crude oil, which is heavier than the oil it sources from the Middle East, and cannot therefore be refined at Indeni.
This would help cut oil transport costs and improve energy security by diversifying supplies.
Impact on the forecast
We maintain that the government will prioritise infrastructure development, but that its interventionist stance risks deterring investors.
Meanwhile, the positive economic impact of a new refinery capacity is not likely to be felt in the short to medium term.