Home' Trinidad and Tobago Guardian : May 30th 2013 Contents BG26 | ECONOMIST
BUSINESS GUARDIAN www.guardian.co.tt MAY 2013 • WEEK FIVE
In March 2012 the heads of state of Ethiopia,
Kenya and South Sudan met among mangroves
in Lamu, a Kenyan town on the Indian Ocean,
to launch the construction of a port and oil
pipeline, together costing $16 billion, that
would serve all their countries and vastly enrich
them. Taxpayers were billed US$350,000 for
the celebratory meal, according to local officials,
though it actually cost only US$4,000.
So far, so profitable. Little has happened
since, though. Plans to build the pipeline have
The absence of President Yoweri Museveni
of Uganda from the launch was the first clue
that all was not well. Uganda recently found
3.5 billion barrels of oil by Lake Albert. It
should be part of any pipeline project that
links new fields in the region.
Oil also has been found on the other side
of the lake, in Congo, and across the border
in Kenya exploration looks promising: Tullow
Oil, a London-listed company, says that it is
pumping 281 barrels per day from a test well.
Nearby Ethiopia is exploring furiously too.
South Sudan, which already is producing oil,
hopes to find more big fields along its border
An oil bonanza is in the offing, in short.
Revenues could lift millions out of poverty,
but only if the oil can find an efficient way
to market. The local fields are expensive to
tap, experts say. A single pipeline could serve
them all and would be the cheapest option,
running to Lamu via Lokichar in northwestern
Kenya and beyond.
The new oil nations cannot agree on a joint
plan, however. All are obsessed with refining
crude at the expense of exporting it. South
Sudan, a country without electricity, is in the
process of building not one but two small
refineries, the first taking 5,000 barrels a day,
the second 10,000.
"Contracts have been signed," says an official
in Juba, the capital.
Ethiopia has even grander plans, hoping to
satisfy the fuel needs of its 83 million people
by building a refinery on the South Sudanese
border, absorbing about 100,000 barrels a day.
Uganda sees itself as a gasoline supplier for
the entire region. Initially it wanted to refine
180,000 barrels a day, but it may scale back
its plan to 30,000 to 60,000 barrels a day.
Only in Kenya is reason slowly taking hold.
Insiders say that refinery plans for Lamu have
Building refineries makes no sense for east
Africa. It would be wasteful and is unlikely to
give countries the energy security they seek,
because some of the fields will run dry quite
soon. The economies of scale in refining are
vast. Buying fuel from mega-refineries in Asia
will be cheaper for a long time to come, even
if it means losing some of the profits from
Even worse, the new oil states of east Africa
cannot agree on where to build their pipeline.
It is possible that three will be built, or none.
Leaders in four countries insist on satisfying
narrow national goals. Ethiopia is in only the
early stages of exploration, so why, its leaders
ask, should they pay for a pipeline? The answer
is that other investors, mostly from Japan, will
sign the checks. All that is needed for now is
a commitment to use the pipeline if oil is
South Sudan has productive fields farther
north, plus access to an adequate pipeline
owned by Sudan, its archenemy. Again, why
pay for a new one? Because South Sudanese
leaders would like to have an alternative outlet,
given northern hostility. Everyone knows that,
but officials are dragging their feet, since the
north recently agreed to a new transit deal
that will run at least until 2016.
Separately the South Sudanese are holding
talks with the Ethiopians about building a
pipeline to Djibouti rather than to Lamu, cut-
ting out Kenya. This would cement South
Sudan s friendship with militarily powerful
Ethiopia and, so the logic goes, strengthen its
position vis-a-vis the north. However, such
a pipeline would be even more expensive, since
it would cross highlands and swamps and take
longer to build. Little advance work has been
done, in contrast to the Lamu pipeline.
Uganda, too, has talked up alternative
pipeline plans. Maps handed around in Kam-
pala, the capital, show three potential crude-
export routes. In addition to the line to Lamu,
they trace one to Mombasa, farther south on
the Kenyan coast, and one to Dar es Salaam
in Tanzania. Both would be for exclusive Ugan-
dan use, since all other known fields are much
The southern pipelines also would be more
expensive than the Lamu option. A line to
Mombasa, one of the world s most congested
ports, would have to climb high mountains
and require heating the oil, to keep it flowing
in the high-altitude cold. The line to Dar es
Salaam would be extremely long and have to
cross national parks. All this because Ugandans
hate playing second fiddle to Kenya, the region-
al top dog.
The Lamu pipeline makes the most eco-
nomic sense for all involved, but failure to
work together may doom it. National and per-
sonal interests trump regional cooperation and
commercial logic. In Uganda Museveni is keen
to settle his legacy as the champion of a strong
nation, building vast refineries and spiting the
tiresome Kenyans. South Sudan is fixated on
warding off the north at the expense, it seems,
of almost everything else. Ethiopia sees a
chance to steal Kenya s thunder too.
"It s every guy for himself,: an oil executive
says wryly. "And I thought the private sector
Pipeline politics makes a mockery of the
East African Community, a bloc dedicated to
regional cooperation. All but one of the coun-
tries are members or aspire to join.
Of late a new momentum behind the oil
push is being felt. The Ugandan government
is in final production talks with three oil com-
panies. Executives from Tullow, Total and the
China National Offshore Oil Corporation, as
well as local civil servants, conferred with
Museveni at his farm near the Rwandan border
in late April. In June South Sudan will finish
a feasibility study for the Ethiopian pipeline
to Djibouti, after which it has said that it will
make a decision on export routes.
"Everything is up in the air," a diplomat
Kenyan and Ethiopian officials, as well as
oil-company representatives, have been scur-
rying to Juba to make their case. Pagan Amun,
who leads South Sudan s talks with the north,
is said to be keen to ditch the Lamu pipeline.
Planners say that it could be built in about
three years, carrying either 400,000 barrels
a day if all countries were on board, or about
half that if South Sudan or Uganda were not.
Kenya s new president, Uhuru Kenyatta, is
pushing for results. He may be especially keen
in order to deflect attention from his indictment
by the International Criminal Court at The
Hague. His first big trip after taking office
was to Lamu, but none of his counterparts
was there to meet him.
By failing to cooperate, the new oil states
are likely to waste part of their wealth on
duplicate infrastructure, building too many
refineries and pipelines. Oil still can be a curse.
@2013 Economist Newspaper Ltd. (Distributed
by the New York Times Syndicate)
Pipeline poker roils East Africa
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