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Kenya: New Momentum in Infrastructure Financing? Print E-mail
Monday, 23 April 2012
Kenya has a number of grand infrastructure projects – Lamu Port, the connecting LAPSSET corridor, Isiolo Resort City, Konza Technology City -, but has so far released little concrete information how they will be realised. The recent oil find, however, seems to increase the overall interest in making at least the oil-related ones happen:
  • The Star writes that the Toyota Tshusho Corporation (TTC) and the Kenyan government are about to sign a memorandum of understanding for a number of investments in energy, logistics, and food production and processing in support of Kenya’s Vision 2030. TTC has reportedly also indicated interest in building the oil pipeline to connect Lamu Port to Southern Sudan. According to Reuters, TTC is expected to complete its feasibility study shortly and will then make a financial proposal to the Government of Southern Sudan.
  • The African Development Bank (AfDB) has also indicated interest in financing some of the LAPSSET-related work, including feasibility studies.
  • Southern Sudan’s president Salva Kiir is planning to seek support for the country’s pipeline to Kenya during his visit to China this week. China’s CNOOC have recently completed their farm in into Tullow Oil’s blocks in Uganda and China had obtained around 5% of its oil from Sudan, so the country already has an interest in the region.
Perspectives
Kenya stood to benefit from the regional oil reserves even without own oil finds, but the expectation that the country has commercially viable reserves in its north have intensified the interest in Kenya’s oil-related infrastructure. However, large-scale projects as LAPSSET are complex:
  • Regional approach: Oil infrastructure requires a regional planning and implementation process: the pipeline is a cross-border project, and it makes little sense to have several refineries dotted around the region – this will also affect investors’ willingness to put more money into refining capacity. The Mombasa refinery is expected to transition to a merchant refinery in July, even though there are doubt whether the legal and regulatory framework will be in place. Uganda has just announced the first steps to construct a 60,000 barrels per day pipeline near Lake Albert, and it is not clear whether this has taken the northern Kenya discovery into account. There is, to date, little momentum on the level of the East African Community (EAC) institutions.
  • Security risks: Southern Sudan is on the brink of war   or at least severe, prolonged hostilities, depending on how you see these things – with the North, and is internally fragmented. Both affect the security environment for a pipeline. TTC have been considering infrastructure, energy and other investments in the region for several years, and they are unlikely to put their money down unless the physical security of a Southern Sudan pipeline is ensured.
  • In the past few days, Kampala and Khartoum also sounded increasingly hostile: Khartoum accused Uganda of providing rebels with passports, which Uganda denied, and in turn threatened to intervene on Southern Sudan’s side if the North’s attacks should persist. One of Uganda’s concerns is that Khartoum would mobilise the rebel Lord’s Resistance Army (LRA) again, but getting involved in the South/North Sudan stand-off is a high-stakes gamble.
Security risks from Somalia and the Somali piracy along the Horn of Africa and the Indian Ocean coast will also affect the LAPSSET plans.

And it would, of course, help if Kenya’s parliament could get round to finalising its work on the Public Private Partnerships (PPP) Bill before the end of the current fiscal year. The bill foresees the creation of a PPP agency: not something that is set up over night, and certainly not an agency with any degree of competence.


Also read: Kenya Oil Find: Good News?



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