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From: Tsegai Emmanuel (emmanuelt40@gmail.com)
Date: Tue Aug 02 2011 - 10:18:21 EDT
Kenya Seeks To Solidify Position with Energy and Transport Project
Created *Aug 2 2011 - 06:21*
Summary
Kenya plans to host a regional conference to attract funding for its
proposed $22.2 billion Lamu Port-South Sudan-Ethiopia (LAPSSET) Transport
Corridor project in September. The project, which would expand Kenya’s Lamu
port and build an oil pipeline from the port to South Sudan’s oil fields,
among other things, has attracted interest from several potential donors and
investors. But LAPSSET is still in its infancy, and one portion of the
project could be threatened by negotiations between Sudan and South Sudan.
Analysis
Kenya will hold a regional conference in September to attract funding for
its proposed $22.2 billion Lamu Port-South Sudan-Ethiopia (LAPSSET)
Transport Corridor project. Kenya, through its port in Mombasa, has a
reputation as a regional hub for the import and export of East African trade
goods. But it has suffered disruptions, most recently when a monthslong wave
of protests following national elections in late 2008 shut down many of the
country’s roads and railway lines not only internally, but also those
leading to the Great Lakes region of Africa. LAPSSET is Nairobi’s plan to
improve and expand its transportation infrastructure linking East
Africa<http://www.stratfor.com/analysis/global_market_brief_second_look_african_infrastructure>in
order to avoid future disruptions and other impediments to economy
growth, both for Kenya and in the wider region.
The Kenyan government first proposed the LAPSSET project in 2010, though the
overall concept behind it has been pushed by Kenyan governments going back
to 1975. While it would certainly benefit trade in the area, LAPSSET has not
yet been approved and is still at a preliminary stage. Even if Kenya is able
to find funding for LAPSSET, completion would still be many years away.
Despite that fact, one portion of the project — the construction of a
pipeline from South Sudan’s oil
fields<http://www.stratfor.com/analysis/20100913_possible_kenyan_alternative_southern_sudanese_oil>to
the Kenyan port of Lamu — has set Sudan on edge and could trigger a
broader dispute over South Sudanese oil.
Details of LAPSSET
The largest portion of LAPSSET’s funding, $7.1 billion, would be used to
improve existing railway lines and build new ones, including to the
Ethiopian and South Sudanese capitals. Roads and rails also would be
rehabilitated or improved to Uganda, and from there to South Sudan as well
as to Kisangani in the mineral-rich eastern part of the Democratic Republic
of the Congo. Another $1.4 billion would be set aside to improve existing
highways and construct new ones, and $1.2 billion would be put toward the
construction of international economic zones with resorts and an
international airport in the Kenyan cities of Lokichoggio, Isiolo and Lamu.
[image: Kenya Seeks To Solidify Position with Energy and Transport Project]
The most important proposals in the project are the expansion of the Lamu
port to 20 berths (estimated to cost $3.5 billion), the construction of a $4
billion oil pipeline from Lamu Port to South Sudanese oil fields, and the
construction of a 120,000-barrel per day oil refinery projected to cost $2.5
billion in Lamu, all helping to create the first alternative export line for
oil-rich South Sudan. The construction or improvement of additional support
infrastructure would require an additional $2.5 billion.
Kenya cannot finance LAPSSET by itself, but there are several countries that
have expressed interest in participating in the project, namely China,
Japan, Germany and Qatar. Some type of multilateral financing component,
probably facilitated by the World Bank, is also a possibility.
China is particularly interested in using the project to tap into East
African natural resources, such as South Sudanese oil, of which China
already is the predominant consumer. Helping to fund LAPSSET also would
reinforce Chinese influence over the region’s natural resources. China has
developed a strategy of building ports in foreign countries in order to
increase its regional influence, and if it financed Lamu, Beijing would hold
a strong position in a key part of East Africa.
Obstacles
The Kenyan government hopes to have the project completed by 2030 as a way
to cement the country’s position as the economic and trade hub for all of
East Africa. Additionally, Kenyan President Mwai Kibaki wants to have
financing and construction agreements signed, at least on the Lamu Port
component, before the country’s next elections at the end of 2012. However,
apart from making improvements to the existing road network between Nairobi
and the northern border town of Moyale that links to Ethiopia, little of the
overall project has yet received financing. In fact, the exact lines for the
proposed pipeline and railway lines to South Sudan and Ethiopia have yet to
be drawn out on a grid — current plans depict only a straight line from Lamu
to Juba and then to the oil fields in South Sudan for the pipeline, and
straight lines from the Kenyan junction town of Garissa to Addis Ababa and
Juba for the railway lines.
In addition to questions about funding and executing the plan, tensions
between Sudan and South Sudan could pose a challenge to LAPSSET. Before South
Sudan became independent <javascript:launchPlayer('ystp4cnb',
'http://www.youtube.com/watch?v=nRMTiKGTGIs', 640, 360)> last month, it
accounted for the vast majority (nearly 490,000 barrels per day) of Sudan’s
oil production. Having lost sovereignty over South Sudan’s oil, Khartoum
compensated by enacting transit fees for the use of the oil pipeline that
runs through Sudanese territory to Port Sudan as well as various taxes at
the port.
The proposed pipeline under LAPSSET would serve as an alternate route for
South Sudanese oil supplies to reach market. The South Sudanese know that
without an alternative pipeline infrastructure, they are essentially
dependent on cooperation with Khartoum to get their oil to market. However,
since the pipeline is several years away at best, Khartoum has time to
influence the project through negotiations with Juba. For example, Sudan
could reduce the transit fees it charges Juba to use its oil pipeline,
thereby making the $4 billion LAPSSET pipeline uneconomical — or at least
less so.
The dependency is not one-sided, however. Prior to South Sudan’s
independence, oil revenues formed about half of Khartoum’s budget. Sudan is
still hoping to compensate for its loss of the South’s oil through transit
fees and other taxes. One other element to the Khartoum-Juba negotiations is
that China, as a majority stakeholder in all producing oil blocks within
South Sudan through Sudanese state-run oil company Sudapet and as a
potential investor in the Lamu infrastructure, holds a unique position in
being able to manipulate both sides to its advantage.
Under a best-case scenario, completion of LAPSSET is several years away.
Many details of the proposals have yet to be worked out, financing and
contracting is absent, and construction of the larger elements, such as the
oil pipeline, would take quite some time. In the case of the South Sudanese
oil pipeline, the South Sudanese are still considering what proposed
pipeline route best suits their interests. Officials in Juba recently have
even talked about Djibouti and Mombasa as alternative pipeline routes. But
if the project overcomes these obstacles and is completed, it would ensure
Kenya’s position as an economic and trade hub for East Africa
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