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Will Juba salvage Kenya’s pipeline dream?

JUBA (HAN) May 1. 2016. Public Diplomacy & Regional Security News. South Sudan is yet to make a decision on its preferred route for transporting its oil, as it awaits the outcome of talks with Sudan over transfer costs.

Juba was Kenya’s last hope for a partner on the oil pipeline, following Uganda’s recent decision to take its oil to the market through Tanga port in Tanzania. Kenya’s successful pitching and construction of the pipeline was initially hinged on the volume it expected to move from its oil fields and Uganda.

The EastAfrican has learnt that South Sudan may not be keen on the pipeline deal with Kenya, instead choosing to play its cards safe as it awaits two technical committee reports.

One of the committees was formed with Sudan early this year over the disputed transfer costs.

Stephen Dau, South Sudan’s Trade Minister, who last week held the Petroleum docket, told The EastAfrican that he was aware of Kenya’s proposal for the northern route, given that they have been partners under the Lamu Port Southern Sudan-Ethiopia Transport (Lapsset) Corridor project, but had not received any official communication over the same from either the Kenya or Uganda following the recent developments.

“Prior to the talks on the possible route, we were jointly on the Kenyan route with Uganda, but, once alternative routes came up, we decided to let Kenya and Uganda negotiate then we can join later on. Once we have a proposal, our technical teams will meet and advise on the right way forward,” Mr Dau said.

In late January, Sudan offered a fee cut to South Sudan, which culminated into a meeting between the two countries in February.

Mr Dau said negotiations were ongoing with his Sudanese counterpart Mohammed Zayed Awad to have a fluctuating transit fees rate that would be dependent on the prices of the crude globally.

“The new fee would be agreed upon by a technical team in not less than one month. What we have agreed on is in principle but we expect that by now, the technical people will be finalising before we reach the conclusion,” Mr Awad told Reuters.

The EastAfrican has learnt that the new negotiated transit fees could be pegged at below $18 per barrel, subject to the prevailing world crude oil prices.

Juba and Khartoum have over the years been feuding over transit fees leading to disruptions in the flow of crude to the markets. Currently, it is paying $24 per barrel to Sudan.

“The issue with Khartoum is different. We can still negotiate with them on the transfer costs because I believe we have enough oil to transport through both Sudan and Kenya, if they bring to the table a bankable proposal,” Mr Dau said.

Gabriel Garang Mayik, a Juba-based economist, said that South Sudan currently has no funds to push for a pipeline, so it would avoid any talk of new construction.

“The South Sudan government has been hit hard by low oil prices. Back in 2012, when it proposed the construction of the pipeline, crude oil prices were at an all-time high and the government was buoyed by this confidence to even rope in a financier who would have a revenue sharing agreement. They don’t have this advantage now, so they would seek a less costly model with their oil,” Mr Mayik said.

Kenya’s Energy and Petroleum Cabinet secretary Charles Keter insists it is not end of the road for Nairobi in the wake of Uganda’s decision to partner with Tanzania for the much needed pipeline.

Kenya will need $2.5 billion to do the pipeline, with the government expected to offset ten per cent of the cost.

“We will now have to do the needful by identifying where this pipeline will pass and also addressing the finance question. We are only getting 20 per cent of this project’s funding from the exchequer. This means that the difference has to be funded under the public private partnership,” Mr Keter said.

Oil and gas analyst Kibambe Musa said that Kenya’s lone quest for the construction of the pipeline will be in question if it is to transport the Kenyan oil alone.

“In oil projects, numbers are key and this is one bottleneck Kenya will have to overcome to successfully build a commercially viable pipeline. When you look at the numbers Kenya is staring at, they have no choice but convince South Sudan that they stand to gain more through the Kenyan route. They will have to offer the best transfer tariff as the oil industry is sensitive to margins,” Dr Musa said.

South Sudan’s crude production currently stands at about 165,000 barrels per day and, with the new government of national unity in place, it is expected that some of the pipelines will be reopened which will increase the countries production.

Oil company Tullow, with stakes in both countries, has also stated that both Uganda and Kenya’s oil resources can be developed separately, but fell short of providing a financing agreement for the Kenyan pipeline.

But Africa Development Bank regional director Gabriel Negatu said that they are ready to act as a lead arranger for financing of Kenya’s planned oil pipeline.

“Kenya will eventually have to build its own pipeline and we at the AfDB could consider financing a pipeline through our private sector window,” Mr Negatu said.



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