Nairobi taps Exim Bank for pipeline funds

Negotiations are underway after a proposed partnership with Uganda fell through

Kenya is in talks with China to construct a crude oil pipeline stretching from its resources-rich Turkana region to the new Lamu Port.

Andrew Kamau, Kenyan principal secretary at the Ministry of Energy and Petroleum, says the government is in negotiation with China's Export-Import Bank to secure funding after a proposed partnership with Uganda fell through.

The pipeline will run from Lokichar in the north to the port currently under construction on the southeast coast, passing close to the border with Somalia.

Last year, Kenya agreed with its western neighbor Uganda to build a pipeline from Kabaale to Lamu via Lokichar. Discussions were started with the World Bank's International Finance Corp and Chinese oil companies on financing the pipeline, which was to have an initial throughput of 300,000 barrels a day and generate $1.66 billion a year.

However, Uganda announced it had pulled out in May at the East African Community Northern Corridor summit in the capital, Kampala.

While officials in Nairobi saw the route as an opportunity to open up the country's underdeveloped Turkana region, where Tullow Oil has discovered vast quantities of oil reserves, their counterparts in Kampala had concerns about potential attacks from al-Shabaab militants near the border with Somalia and the large compensation costs that would need to be paid for private land.

Instead, the Ugandan government opted to use the 1,400-kilometer pipeline from Kabaale to Tanga, a seaport about 200 kilometers north of Dar es Salaam in Tanzania, where it plans to start exporting its crude oil by 2020.

The oil reserves in Uganda are estimated to be about 6.5 billion barrels, and the country expects to start production in 2018. China National Offshore Oil Corp, France's Total and Anglo-Irish company Tullow hold most of the licenses.

Undeterred, Kenya is already moving on to the front-end engineering design stage for the Lokichar-Lamu pipeline, which will round out details for the route and time frame for construction, Kamau says.

"The government has advertised the tendering process and interested partners are expected to bid," he says, adding that although it will take longer than originally planned, the country is determined to follow through with the project.

China stands a good chance of constructing the pipeline because its companies are already involved in projects at Mombassa and Lamu ports.

Lamu Port is part of the larger transportation corridor between Kenya, Ethiopia, South Sudan and Uganda that is expected to facilitate the transportation of crude oil and other goods.

China sees the two ports as important to its Belt and Road Initiative, a program designed to improve connectivity between Asia, Africa and Europe that includes railways, highways, oil and gas pipelines, power grids, internet networks, maritime and other infrastructure links.

Last year, President Xi Jinping said he hoped China's annual trade with the nations involved in the initiative to surpass more than $2.5 trillion over the next decade.

China is also involved in funding and building Kenya's Standard Gauge Railway, which will initially connect the coastal city of Mombassa with Nairobi, before being extended to Malaba in the west and then other major cities, such as Kampala, Kigali in Rwanda and South Sudan's Juba.

China Road and Bridge Corp is building the railway, while the Chinese government has put $5.2 billion toward the first phase of the project. The work is expected to be complete by 2017.

Beijing has also agreed to finance a new port in Bagamoyo, Tanzania, that could require and investment of more than $10 billion.

For China Daily

(China Daily Africa Weekly 06/10/2016 page29)