Ethiopia Oil Refinery Planned as Blackstone Pipeline Shelved

Ethiopia’s fast-growing economy has Asian investors lining up to build a new $4 billion oil refinery, even as a Blackstone Group LP-backed fuel pipeline project is shelved.

The proposed 120,000 barrels-a-day plant has generated interest from Japanese, South Korean and Indian investors, said Zemedeneh Negatu, chairman of U.S.-based Fairfax Africa Fund. The refinery in Awash, east of the capital Addis Ababa, would import crude through neighboring Djibouti and along a railway recently completed by Chinese state enterprises, he said.

The Asians are “very excited,” said Zemedeneh, declining to name the potential investors who have signed memorandums of understanding. “Some are big commodity trading houses.”
Half of the refinery’s output would be directed to the Ethiopian market, with the remainder exported to neighboring countries in East Africa, according to Zemedeneh. Fairfax Africa has plans to eventually double the plant’s capacity amid industrial expansion and increased demand for motor vehicles.

Ethiopia recorded annual average economic growth of about 10 percent over the past decade, and the International Monetary Fund estimates expansion at 8.5 percent in the current fiscal year.

There has also been interest from a U.S. financial firm in a project in which the Ethiopian government would be the sole fuel distributor, Zemedeneh said.

Pipeline On Hold
In 2015, Ethiopia and Djibouti signed framework agreements for the construction of a 550-kilometer (340-mile) pipeline to transport diesel, gasoline and jet fuel to Awash from a port on the Gulf of Aden. The work on that $1.6 billion Blackstone-backed fuel pipeline was put on hold “early last year,” Black Rhino Chief Executive Officer Brian Herlihy said in an emailed response to questions.

Minister of Mines, Petroleum and Natural Gas Motuma Mekassa didn’t respond to requests for comment.

The proposed Fairfax Africa refinery faces competition.

In Ethiopia, the Oromia region’s government has been planning a petroleum company to import oil via Djibouti and process it at a planned refinery linked to the new railway. The company is targeting a 21 percent share of Ethiopia’s fuel market within five years, according to a feasibility study.

Neighboring South Sudan expects operations to begin in 2020 on a 120,000-barrel-a-day refinery with more facilities to follow. To the south, Uganda is moving ahead with a 60,000 barrels-a-day plant that will be supplied with crude from fields being developed by Total SA, Tullow Oil Plc and China’s Cnooc Ltd.

Peter Grauer, chairman of Bloomberg LP, is a non-executive director at Blackstone.