Kenya: Raila leads rush for Southern Sudan oil

kenya_raila_odinga_2The political and economic configuration of the East Africa region is set for a critical economic transformation as countries engage in an unprecedented oil race even as Kenya declares it is smelling oil.

Prime Minister Raila Odinga (pictured), who is currently in China on official duties, has successfully brokered a deal that would see oil from Southern Sudan exported through Kenya after refinement at the port of exit.

The deal and the recent discovery of oil in Uganda puts Kenya at a strategic position to claim a slice of the billions of dollars from oil revenue to transform her struggling economy that almost ground to a halt after the disputed General Election of 2007.

But this strategy appears to be running parallel to the muted talk in Government that a statement on discovery of oil on Kenyan soil could be coming before end-month. Energy minister Kiraitu Murungi was this week quoted by a regional paper saying: “In a matter of days we could be celebrating. God-willing, I shall be announcing an historical discovery at the end of this month.” It is believed to be another Chinese venture, at Isiolo, which is 5 kilometres deep. Kiraitu added: “We have done our homework and all indications are that Kenya will join Uganda in celebrating the status of a new oil producer.”

But with the biggest oil companies in hot pursuit of the few remaining major energy players, and just in case the dream of a Kenya with oil wells is a stillborn, Raila is driving a harder bargain to position the country as a gateway to the unexploited oil riches of Uganda and Southern Sudan.

Raila says Kenya, which has no oil of its own and could benefit from the disadvantaged position of both oil baskets as landlocked, turned to China as a second option. The initial agreement was the Sh270 billion deals with Qatar in exchange for 40,000 hectares of land to grow crops; but the deal was signed between the two states.

Chinese companies

But in what could make or break the economic prosperity of Kenya, Uganda and Sudan, countries in the region are already plotting on how to maximise benefits from the black gold.

In recent days, Kenya, Uganda and Southern Sudan have been cutting deals with mainly Chinese companies in what is being interpreted as an oil race for petrodollars.

Kenya, which until recently has been a passive player, has joined the race with excitement on the prospects of striking its own oil, but could still cash in from the petrol fortunes by providing infrastructure should her wells turn out to be dry.

Create employment

Railas successful negotiations with the Chinese Government would see oil from Southern Sudan exported through Kenya.

The Chinese Government has agreed to fund the construction of key facilities that include rail and road network, a pipeline, and refinery. “This deal is good for us because it means Kenya will benefit from transportation charges and creation of employment,” said Mwendia Nyaga, the managing director of state-owned National Oil Corporation (Nock).

Raila himself said when the deal went through: “The Chinese offer the full package.” He was referring to the fact that Chinas offers a one-stop shop in terms of the financing and technical expertise with which its banks and construction firms have placated Africa.

Conservative estimates show that Kenya could earn a Sh7.5 billion annually for transporting 2.5 million tonnes of oil from Southern Sudan through Kenya.

Necessary infrastructure

This is based on projections that Southern Sudan exports 50,000 barrels per day, which translates to 2.5 million tonnes per year and using the fact that Kenya Pipeline Company (KPC) charges $40 per every ton that passes through its facilities.

According to experts, the immediate challenges are in building the necessary infrastructure to connect the two countries considering that a massive $1.6 billion (Sh125 billion) is required to build the 1,600 km pipeline alone from Southern Sudan to Lamu.

Though the most feasible strategy would be to build a pipeline from Southern Sudan and another one from Uganda to meet at around Lake Turkana and proceed to Lamu as one pipeline, huge egos among countries is hampering co-operation. “The investments required are enormous and there is need for close co-operation among the three countries,” said Patrick Obath, the chairman of Kenya Private Sector Alliance (Kepsa).

The decision to go alone could see the region become a haven for oil facilities that are largely underutilised. According to Obath, construction of multiple refineries and pipelines creates challenges for the region and could end up being a costly affair in the long run.

“You dont need facilities that would be idle most of the time,” he said. This view gives Kenya unenviable position owing to its location to host the two oil rich neighbours.

Only recently, the Government of Southern Sudan passed a resolution to safeguard its oil resources starting with the construction of a $1.5 billion refinery with a capacity to process 50,000 barrels per day.

Uganda question

Coming soon after the launch of a report dubbed Fuelling Mistrust by Global Witness that said Southern Sudan has not been getting a fair share of oil revenues from the Khartoum Government, the move has been interpreted as preparing to secede.

Southern Sudan is preparing for a referendum in 2011 to decide whether it should be an independent state from the North in accordance with the Comprehensive Peace Agreement signed in Nairobi in 2005.

Then there is Uganda, which has been complicating the political relations in the region with chest thumping since discovering huge deposits of oil in Lake Albert Rift Basin.

The country is currently undertaking a feasibility study for construction of a refinery with a capacity of 150,000 barrels per day at an estimated cost of $2 billion.

However, being a landlocked nation, Uganda must still construct a pipeline to export the refined product is torn between using Kenya or Tanzania for political reasons.

Revive her refinery

Though building a pipeline to connect the oil rich country to Port of Mombasa is cheaper, Uganda is contemplating building one to the Port of Dar-es-Salaam due to political instabilities in Kenya going by the post-election violence last year.

And as Kenya undertakes the upgrading of the Kenya Petroleum Refinery after selling 50 per cent to Essar of India, Tanzania is seeking for an investor to revive her refinery, which is currently acting as a bulk storage facility.

With demand for oil in the region estimated to be around 250,000 barrels per month, there is high likelihood that most of the facilities could become a waste of money in building them.

And although the demand for oil in the region has been on a steady growth in recent years, the rate of economic growth is not in tandem with the production of the refineries.

The Standard

Post published in: Economy

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