Rwanda's planned strategic fuel reserves to cushion the country against supply shocks will cost $84 million.
Although a strategic investor is yet to be found, the planned investment is set to increase the country's fuel storage capacity from the current 74 million litres to 150 million litres by 2018. This will place Rwanda ahead of its peers in the region.
Expanding the fuel reserve capacity comes ahead of the 2017 Kenyan election, which local analysts fear could affect the flow of goods on the Northern Corridor.
The 2007 post-elections violence in Kenya disrupted imports including fuel and petroleum products to East Africa's landlocked countries.
However, Robert Opirah, director-general for trade, and industry in the Ministry of Trade said Rwanda now imports less fuel through Mombasa and any supply disruption along the route will have less impact.
Mr Opirah noted that 80 per cent of the country's fuel is imported through Dar es Salaam port. The country's annual fuel demand is growing at 10.1 per cent and currently 230 million litres of fuel is consumed with heavy fuel generated power galloping the biggest percentage of imported fuel.
Rwanda generates 40 per cent of its electricity to power households and run industries by running heavy fuel generators. And any disruption in supply could cripple the manufacturing sector.
Rwanda Trade and Industry Minister Francois Kanimaba said the reserves will reduce the growing pressure on the storage facilities in the country and also boost the country's fuel re-exports.
Fuel demand at Kigali airport
Rwanda is also emerging as re-exporter of petroleum products to the neighbouring Democratic Republic of Congo and Burundi and serves the growing number of airlines that refuel at Kigali International Airport.
Despite the growing demand for fuel in the country and the downstream market attracting many players, the country has not built new fuel storage facilities.
As a result, there are routine delays in delivering fuel and picking up stock at the facilities at Gasata and Kabuye, which increases the costs of doing business in Rwanda.
The reserves leased by the Rwandan government to Kenya's KenolKobil and Engen have a joint capacity to store 30 million litres of petrol.
Private players, including Oilcom from Tanzania, are constructing a 20 million litre storage depot that will be leased to the growing number of oil marketers.
Besides increasing the storage capacity, the Rwandan government is also calling on oil marketers to enter hedging deals with fuel and petroleum products producers to reduce the country's exposure to price hikes and ease pressure on its foreign reserves.
The price of a barrel of crude oil, according to the World Bank, in its April Commodity Markets Outlook, is predicted to jump 74 per cent, from an average of $38.1 this year.
For Rwanda, the planned fuel hedging and bulk purchase have to be supported by huge strategic reserves that will be constructed by both the government and the private sector to protect the economy against supply shocks.