Last
week the governments of Kenya and South Sudan signed an agreement to commence the
construction of an oil pipeline from the oil fields of South Sudan through to
the Kenyan port town of Lamu on the Indian Ocean. Construction is set to begin
in early 2013 and end in 2015. This was after an initial memorandum of
understanding was signed between the two counties in the wake of hostilities
between the Republics of Sudan and South Sudan in January 2012.
The
genesis of the hostilities that resulted in a short armed confrontation in January
2012 is that when South Sudan broke away from the North with independence on 9th
July 2011 it took with it three quarters of the oil reserves of the former joint
country. However, being land locked it had only one route of exporting its
crude oil through pipelines that run through Sudan to export terminals in Port Sudan.
Due
to disagreements on pricing of the transit fee, Juba suspended production of
crude at the onset of the conflict. Khartoum demanded US$36 per barrel from
Juba to export the oil while the latter offered a little over US$1 on the basis
that the figure was close to international averages. Juba also accused Khartoum
of seizing some oil assets and diverting oil through secret pipelines to make
up the unpaid fees.
After
many months of bitter negotiations the chief mediator Mr. Thabo Mbeki (former
president of South Africa) announced that both sides had reached a compromise agreement
on the oil. This was after undue pressure from regional neighbors such as Ethiopia,
Kenya and Uganda in addition to western powers such as the United States and
the EU and the biggest beneficiary of the oil, China.
The
discontinuing of the oil production has led to undue economic hardships in both
countries with the government in Juba loosing 95% of its budget revenues. Experts
from the Bretton Woods institutions are saying that the country would have run
out of foreign exchange between the end of August and October 2012. On the other hand Khartoum has been reeling
from the effects of a sharp drop in oil revenues which has manifested itself in
various forms; such as a sharp rise in inflation, spiraling
high fuel prices and fuel shortages in addition to higher food costs. This led
the government to
announce biting austerity measures that have resulted into sometimes violent demonstrations
in Khartoum for that first time in over a decade from a public that had become accustomed
to a comfortable life funded by petro dollars.
Details of the oil deal are sketchy with
Sudanese officials stating that Juba will export oil at a fee of US$25 per barrel
while the South Sudanese government stating that they will pay US$9.48 per barrel
and an additional US$3 billion one off lump sum as an unprecedented budget
assistance to the North. The fee to be paid (cumulative US$11) is the highest
rate in the world and the government of South Sudan is understandably looking
at alternatives.
As
it signed the oil transit deal with Khartoum it also signed the new pipeline construction
deal with Kenya. The agreement with the North is set to end in 2015 when the South
is hoping to have constructed alternative pipelines through Kenya and probably another
through Ethiopia and Djibouti.
The
South Sudanese Kenyan pipeline project will be funded by South Sudan and
jointly managed by the two countries and ensures that the pipeline passes
through Kenya’s LAPSSET corridor. LAPSSET is an alternative
transport corridor in Northern Kenya that connects the port town of Lamu to South
Sudan and Ethiopia. The LAPSSET projects championed by the government of Kenya
under its Vision 2030 mission are valued at US$23 billion and include a planned
port, a refinery, the pipeline, roads, airports and resort cities in Kenya’s
underdeveloped north.
The pipeline is also
planned to export Kenya’s recently discovered oil from the northern oil fields
of Turkana where this pipeline is set to pass through. There are also
unconfirmed reports of negotiations to build a branch of the pipeline to the oil
fields in the Lake Albert region of north western Uganda.
Along the pipeline will
run a fiber optic communications cable that will connect South Sudan to the
world.
The intrigues around
this pipeline continue.
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