Kenya could lose out on major economic benefits linked to handling South Sudan’s oil exports if a plan by the government to re-route its pipeline through Djibouti comes to pass.
In an interview with Africa Review, a publication of the Nation Media Group, the under-secretary for South Sudan’s finance ministry Wani Gweri said the government is increasingly looking at Djibouti as the more feasible option of exporting its oil as it is more cost-effective than using the Lamu port.
A decision by South Sudan to route its oil through Djibouti would leave Uganda and Kenya as the only financiers and users of the proposed Lamu pipeline.
Kenya would stand to gain through sharing of the cost of building and maintenance of the pipeline, which would also be used to transport oil exports from the Turkana oil fields.
Handling shipments of the oil would also bring in extra income at the Lamu port, with the possibility of the building of a refinery to serve the three States.
Mr Gweri told Africa Review that the shortest and cheapest route for the South Sudan pipeline is through Djibouti since the oil fields are nearer Ethiopia and Djibouti than Kenya and Sudan.
The country is now evaluating bids for the pipeline.
“We will deal with this matter in a transparent way. The final determination will depend on the result of the bid and the locations of the fields, so we need to discuss several alternatives,” he said.
South Sudan has been considering alternatives to the old pipeline that runs through its northern neighbour, Sudan, following persistent disputes on shipment fees.
South Sudan has over three billion barrels of oil reserves, pumping over 300,000 barrels per day.
The comments cast a shadow on an agreement signed in January between Kenya and South Sudan for the construction of an oil pipeline from the South Sudanese oil fields to Lamu.
Since the deal was signed, however, Kenya has discovered commercially viable deposits in the Turkana basin.
George Wachira, a director at Petroleum Focus Consultants, says that South Sudan should take economic benefits that would come from sharing construction costs.
Uganda and Kenya have signed a deal to jointly construct a pipeline to Lamu to ship crude oil.
The route would pass through Turkana, the same route that the Lamu Port Southern Sudan-Ethiopia Transport Corridor (Lapsset) was meant to pass.
“If South Sudan joins up with Uganda and Kenya they will enjoy economies of scale and save on investments costs by forming a tripartite joint venture for a pipeline to Lamu. Perhaps the South Sudan tender quotations will reflect this new Lamu scenario which will enable the country to make the correct investment decision,” said Mr Wachira.
South Sudan is party to the Lapsset project, which incorporates an oil pipeline running from Lamu to South Sudan.
The country’s President Salva Kiir joined former President Mwai Kibaki and the late Ethiopian Prime Minister Meles Zenawi in laying the foundation stone for the project on March 2, a move that was then interpreted as indicating Sudanese preference for the Lamu port.
The bids for the new pipeline come at a time when South Sudan has moved towards enacting laws on its oil industry, seen as key in attracting much needed investment in the sector.
The country’s Parliament this week passed the petroleum revenue management Bill, which sets out regulations and rules on spending of oil revenues.