Will Juba Government salvage Kenya’s Oil pipeline dream?

By ALLAN OLINGO, TheEastAfrican, MAY/01/2016;

IN SUMMARY:
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.
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.
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.

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.

READ: Kenya to build own pipeline as Uganda favours Tanga port

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. END

14 Comments

  1. Force_1 says:

    Really! South Sudan don’t have the fund to fund the pipeline through Kenya to the coast of Lamu or Mombasa? Isn’t South Sudanese being fooled to pay between $ 13.00 to $ 29.00 transit fees per barrel? Beside; what’s $ 3 billion financial aid package being paid to Sudan annually for? Where in this world were country’s officials are being fooled to pay that much money to transit a single barrel?

    If you look at the records from the countries in Africa which are landlocked; they pay less than a dollar to transit a barrel of their oil from their landlocked country to the sea shore and South Sudan pay that between 13 to 29 dollars to transit a single barrel? How insane are those people who accept that kind of deal? South Sudan produces almost 400 thousands barrels per day from all the oil fields in the country combine!

    The pipeline through Kenya is absolutely the deal that will give every South Sudanese prosperity they desperately need. Those behind discouraging South Sudanese to build the pipeline through Kenya are none other than the Sudanese in the north themselves. The deal going forward with Kenya will leave them to poverty therefore; they are doing everything they can to disrupt it but they will never succeed!

    • info@southsudannation says:

      Force_1,
      You see, if we don’t extract and export the oil through the North Sudan, we don’t pay anything. Since this is a diabolical exploitation, why doesn’t Kiir scratch his bold head and look for a way out of jellaba Arab north exploitation.
      For instance, if Kiir and Machar are serious, we could exploit the water resources by embarking on massive agriculture by using the Nile waters.
      Believe you me, Khartoum will sooner be on their knees begging South Sudan, same to Egypt. We will bring down the oil transit fees dramatically down.
      Alternatively, Kiir-Machar should build a local refinery and see who would be begging South Sudan! We shall be exporting refined petrol to Khartoum and no transit fees ever again.
      Editor

      • Bol says:

        Editor,
        Refinery is the only solution. Nothing more. It will reduce the cost of transportation internally, cut our imports (400) millions USD a year, boost agricultural production and facilitates roads construction. The government was about to open one refinery but Al Basheer destroy it through his proxies. Let us see if Al Basheer proxies can turn around and fix what they destroyed a while ago.

    • Eastern says:

      Force_1,

      Posturing is what you and your likeminded in Kiir’s government is full of. South Sudan is broke to the bones and can’t even afford basic necessities of life. In Juba, fuel is scarce, “government” ministries don’t run at full capacity. The newly printed banknotes are just making matters worse. More South Sudanese continue moving south into Uganda in droves on daily basis. Hello, what’s happening?

      If at all South Sudan still believe it’s crude reserve are of any economic value, you may want to suggest that another pipeline runs down south linking up with those of Uganda in the Albertine region so that South Sudan uses the Hoima-Tanga axis. South Sudan can’t afford to fight Khartoum by simply building a whole new oil pipeline through an area prone to Al Shabab territory. Sudan can as well effectively use the Al Shabab outfits to fight South Sudan to fail the country economically!

      The Juba establishment needs to put to good use Drs Lam and Riek now at its disposal.

  2. Eastern says:

    It makes no economic sense for South Sudan to invest in a new oil pipeline given the dwindling reserves and falling prices of crude oil in the world market.

    Agree with Sudan on crude transit fees dependent on prevailing prices in the world market.

    South Sudan should stop pegging its existence on crude export; it has other resources such as livestock, agriculture, minerals, etc. The proposed Kenyan crude oil pipeline straddles through insecurity-prone areas – the facility can be vandalized by Al Shabab or any other negative forces in the region. The terrain would present some construction challenges.

    • info@southsudannation says:

      Eastern,
      Your apprehensions are correct and that explains why Uganda opted out of this pipeline project. Kenyans are devilish exploiters and they want Kiir to invest in this unprofitable project. With the dwindling oil prices, South Sudan should now look to other alternatives, the oil can wait.
      Editor

  3. False Millionaire says:

    American economic and developmental influence in RSS is something positive that should be encouraged.
    Apart from exporting the oil which value is rendered less valuable due to transit fees,our oil can still keep it’s value and that is by refining some of it for our energy consumption which can speed up development.
    There is gaz that is burned and wasted during the extraction of the oil and that gaz too is of great value if it’s gathered,treated and confined in containers for cooking.
    Immagine how many trees will be left within ten years in RSS due to our dependence on charcoal?
    There isn’t any lack of market for refined fuel.Uganda and the rest of RDC depends on fuel transported by difficult long road conditions from Mombasa.I still trust in Garang.He would have done something of the kind already.

  4. False Millionaire says:

    Ofcourse not Kiir and Riak!!!

  5. Dear Editor

    Your suggestion on building local refinery is not good at all! You and I,we are living in the western countries in the west.The western countries,in the west,they are part of capitalism mindset! Building a refinery in this time,is not good! The reason why is not good is that The South Sudan government is facing a huge challenges that are lying ahead! Take example,the South Sudan government in big debt simply because they loaning money to the South Sudan for their potential benefit interests! Again,the country in the South Sudan is being under DICTACTION PROBLEM!

    For the South Sudan government to build a refinery within,it is more cheaper in foreign countries! Let the South Sudan government continue in Sudan on transit fees! One,day,the matter will be overcome at once! What Sudan government is eating,it is not a big food it is small food altogether!The government should forget about neighbouring countries such as Uganda,Kenya,Tanzania.Those countries among themselves they fight for their own interests separately in the region! The South Sudan government,do not have monetary in the treasury!

  6. Man from West says:

    Abiko, you talk nonsense! The money south Sudan pays as oil transit fee to Sudan is enough to build a refinery is saved over 5 years. So why not take alone and build refinery, that pay off using money you would have been paying to Sudan plus profit from the refinery? African mind, especially that of South Sudanese, is like that of a 5 year old, ever stupid not capable of thinking strategically apart from planning to steal cattle.

  7. Chief Abiko! says:

    Hi,sir/madam

    No nonsense for me at all! Transit fee paying to Sudan in Khartoum government in Juba,is small money.It will not build a refinery in front of God!

    Now,multiply $29 transit fee x 19600 barrels oil x 5 years.It will never do anything very well for building refinery! Building refinery,it cost too much money!

    MO.USA

  8. Force_1 says:

    I copy this and paste from the Routers;

    “Sudan has lowered its oil transit fees demand to $32.20 a barrel in a bid to resolve a … South Sudan shut down 350,000 barrels per day of oil production in …
    Khartoum thinks $32 is a fair charge, the minister told Reuters!”

    Really! $32.20 to transit a single barrel of oil is a fair charge and officials in South Sudan buy it and not see it as a joke!
    There are countries within Africa which are landlocked countries and they transit their oil using cents per barrel and South Sudanese official in charge of oil don’t know that? How sad!

    For those who think we can’t afford to built an alternative pipeline to a different route eastward; this is how much money South Sudan pay as transit fees only to Sudan—–
    $32.20 x 350,000 barrels per day multiple that by 5 days a week multiply it again by 52 weeks a year and dollar amount is equal to $ 2,930,200,000.00 that’s the amount South Sudan paid Sudan annually. Not only that; Sudan also asked to paid $3.5 billion as compensation package and South Sudan gave it to them. This give South Sudan the grand total of
    6,430,200,000.00 This is the amount we offered Sudan annually now tell me we can’t afford to do anything with our oil without Sudan!

    South Sudanese; we need to invest in mathematics to know how valuable our resources are; it’s sad to see how incompetence most of us are in this 21st century!

  9. Dear Force 1:

    I can hear you well according to what you have said! I am always respect the human beings opinions!The amount Juba government is paying in Khartoum, is a small money indeed! You cannot do anything for it bear it in mind firm!.The amount will never and ever buy equipment at all! Juba government have no equipment and engineers!

    To get equipment,you will get in the western countries in the west such as USA,China,Russia,France,Germany in which they will charge very high price with potential interest! They are business countries! They are not play! They are very serious about! You pay, they will work! No pay,no work! This is the bottomline!

    The Khartoum government built a refinery in Port Sudan,they used oil money to pay TALISMAN OIL COMPANY Meanwhile they used Southerners those of Paulino Matip,Peter Gadet to protect them from John Garang armies SPLA. attack!

    Remember that during president Jafar Mohammed Nimery,John Garang disrupted him from building refinery in Port Sudan that was called Marsha Nimery.I have seen at a time that when I was in Port Sudan during the war in army struggle! Again,he disrupted Jonglei Canal for him for Egypt agreement. President Omer El Bashir, and El Turabi,have used those of Paulino Matip, Peter Gadet,Kerbino Kwanyin Bol,during the debacle of 1991.

    Please,be apprised that without internecine of 1991,Talisman Oil Company Petroleum and Chinse company,they would never have been succeeded to dig the pipelines from Bentiu Unity State all way up to Port Sudan safely totally! They have succeeded when secured in security from the Sudan government in Khartoum and South Sudan gladiators!!!!! Back to you to the audience in the forum! South Sudan Nation(SSN)

    Ongelet Village Torit,South Sudan-Africa!.

  10. False Millionaire says:

    Force_1,
    The most dangerous thing in human survival is reliance on one single means of living that is oil in the context of RSS’ economy.The 32.20$ per barrel that u cite as a transit fee demanded by Khartoum will come to be much the same as the cost of the investment on the pipeline through Kenya.It’s good to accept that the one is a bad solution as the other.The only best solution under the circumstances is temporary freezing of crude oil exports and giving priority to refinery.
    There is no single need to overlook refinery becouse already the oil is ours,will cost us nothing and is inside our country.The fuel that is used in RSS today comes from kenyan refinery in Mombasa and is too expensive.
    Apart from our national fuel needs,when we shall have been refining our oil,we will be able to export the surplus to DRC,Uganda,Kenya and ofcourse Sudan brining back home hard currency that will permit us to import materials and products that we will be in need of from abroad.
    Dr Garang died preaching that eventuality as the root of our development.We will fail and lose our country all togather for refusing to do what he had correctly preached.

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