Kenya's petroleum industry is bracing for tough times following a decision by Uganda to build its own refinery and supply itself with oil. Having recently discovered oil reserves near its border with the Democratic Republic of the Congo (DRC), Uganda has invited reputable firms to undertake a study as a precursor to the development of a refinery in the landlocked economy.

The planned refinery which is expected to start processing crude soon after April next year will gradually reduce Uganda's dependence on Kenya's refinery for petroleum products.

Norway through its development arm, the Norwegian Agency for International Development (Norad), will finance the study set to cover the entire value chain from production to delivery of finished products.

"The study is intended to be an independent assessment of development alternatives for the area ...to evaluate possible refining and related infrastructure alternatives," said an advertisement recently carried in the East African weekly newspaper.

Transit trafficDr Eric Aligula, an infrastructure expert at the public policy think tank, KIPPRA, said Uganda's move means Kenya's petroleum industry players, particularly those overseeing the refinery and Kenya Pipeline, will have to review their investment strategies in view of the new developments.

But Dr Aligula said there was growing demand for petroleum products in other landlocked economies in the region, the Ugandan plans notwithstanding."There are still other markets like Rwanda and eastern DRC. The regional demand [is still largely] unmet," he said on phone.

Currently, Uganda imports 100 per cent of its petroleum through Kenya, primarily via the pipeline and by road.

According to the port's performance statistics for the last year, Uganda accounted for 76 per cent share of the transit market, with the Mombasa port handling 3.7 million tonnes of cargo destined for Ugandan in 2008, representing a growth of 8.9 per cent over the previous year.

Transit traffic registered remarkable growth of 10.2per cent, to 4.87 million tonnes in 2008.

The DRC came second in 2008 registering an impressive 18.4 per cent growth to 304,400 tonnes in 2008. Rwanda and Burundi also registered marginal increase in their usage of the port.

These two countries have been exploring the use of the Dar- es-Salaam port for half of their imports. Kenya collects tax revenue from across the petroleum industry value chain including pipeline and road transport companies, import and export firms and other intermediaries.

Recent oil exploration in the Lake Albert area has revealed that the Albertine Graben contains sufficient reserves for commercial development.

"The government is promoting the rational exploration of the hydrocarbon resources in the country. Recently, the Ugandan government has rigorously promoted oil exploration in various parts of the country," read the announcement in part.