Kenya woos S. Sudan after oil pipeline deal with Uganda collapses

Kenya is reviving its deal with South Sudan in which the latter will export oil through Lamu Port. This is aimed at increasing use of the Lokichar-Lamu crude oil pipeline.

The move comes after the collapse of the Uganda deal. However, experts warn that Kenya could find itself in a difficult situation again saying Total, which killed the Uganda deal, is the main holder of the majority of oil blocks in South Sudan.   

Petroleum Principal Secretary Andrew Kamau said by phone that Kenya will begin talks with South Sudan to have it export oil through Lamu.  

“We had a deal with South Sudan before Uganda requested us to delay construction of our pipeline so that we could do it together. We will now move forward with plans mooted in 2012 that will see South Sudan connect to our pipeline,” said Mr Kamau. “We are left with two years of work to hit production, we now want to initiate talks with South Sudan.”

With tact

Mr Joe Nyaga, the head of projects at Northern Corridor summit where Kenya, Uganda, Rwanda and South Sudan are members, said that, “Kenya must approach the South Sudan deal with tact since majority of oil blocks are owned by Total.”

French firm Total is behind Uganda’s involvement with Tanzania in the crude oil pipeline. The firm owns oil blocks in Congo, Uganda and South Sudan, and would be interested in having all its resources together transported through the Port of Tanga.

Total has stake in a 120,000km² concession in Jonglei state, South Sudan with interests in more oil blocks in the country.

The blocks are however closed with activity going on in Upper Nile state only, several months after violence began between groups loyal to President Salva Kiir and Riek Machar, who is now vice president after a peace deal was brokered.  

The violence that has rocked oil rich South Sudan is seen as a hindrance to effective oil production as majority of oil blocks are usually closed when the turmoil is at its peak.

Kenya is nonetheless carrying on with its earlier contract with South Sudan to have the latter export 160,000 barrels of its crude oil per day through Lamu.

Kenya is bound by South Sudan through a Memorandum of Understanding (MoU) signed in 2012 through the Lamu Port South Sudan Ethiopia Transport Corridor. The deal was to set the pace for Lamu Port to be used as an export point for South Sudan crude oil.

Mr Nyaga however said there is no guarantee that the Juba deal will come to Kenya. He noted that if all considerations are put together, it would take Kenya “too much negotiations” to have South Sudan oil exported crude through Lamu.

Energy Cabinet Secretary Charles Keter did not pick our calls to answer questions on whether all issues had been taken into consideration on the decision to have Juba export oil through Lamu.

However, despite the risks involved, there is a fresh argument that Khartoum currently charges South Sudan very high tariffs that would make it consider exporting oil through Lamu.

“This will boost the country’s share of wealth. Sudan collects $25 per barrel in transit fees from South Sudan for exporting oil through its territory, and Kenya presents a more affordable option through Lamu,” explained Kenya Pipeline Chairman John Ngumi in an earlier interview.

According to Ngumi, the Kenyan pipeline through the north is a huge investment since it could be extended to Ethiopia.

The move to look north for an export partner comes after Uganda decided to construct its Sh400 billion pipeline through Tanga, based on its affordability and accessibility. French firm Total backed the move, bringing its financial muscle to bear in defending its position.

Uganda in its final report presented at the Heads of State Summit in Kampala last month said that Tanzania had waived its tariffs and with the land belonging to the government, the whole deal became less expensive.

In Kenya on the other hand, tariffs were higher and it would heavily cost both Uganda and Kenya to displace people and compensate them for their land.

While Tanzania would charge $12.2 for each barrel of oil going through the crude oil pipeline to Tanga port, Kenya would charge Uganda $16.8 or more to transport a barrel of oil through Lamu route.

Uganda’s decision dulled Kenya’s high moments at the Kampala heads of state summit. Sources privy to inside deals at the summit said President Uhuru Kenyatta was disinterested in the meeting as it began because it was already clear that the Tanga route would be taken even despite tough negotiations.

Spirit of integration

“There was no mention of the crude oil pipeline until the last minute owing to pressure by Kenya to have the final decision announced.

In fact President Kenyatta refused to sign the final communique, but later did it quoting the spirit of integration,” said the source who pleaded anonymity because of the sensitivity of the issue.

Mr Nyaga who was present during the proceedings said he was very disappointed. “Despite Uganda’s decision to build its pipeline through Tanga; Uganda and Kenya are like twins interconnected with more that keeps us together, so in future we must work together in the spirit of integration,” said Mr Nyaga.