Toyota bids for Juba-Lamu Oil Pipeline

An oil pipeline: Bid in place for Africa's largest PPP project

TOYOTA TSUSHO, the investment arm of Toyota Motor Corporation of Japan, has bid for the construction of the US$3 billion, Juba-Lamu oil Pipeline. The pipeline will initially transport some 700,000 to one million barrels per day (bpd) of Sudanese crude to the Lamu Port in Kenya which is under construction. Eventually it is expected to transport crude from Kenya and Uganda to the Lamu port for export.

Apart from the 2000Km Pipeline, the bid also includes the construction “of an oil refinery, power stations, jetties and other infrastructure facilities” said Dennis Awori, Chairman-Toyota Kenya Ltd.

The bid, if successful, will be the largest PPP project in Africa. In a statement released this week, the company said it has proposed to develop the Pipeline on a Built-Operate and Transfer (BOT) basis on a 20 year concession.

The company is still doing a feasibility study of the project whose construction is expected to begin in June 2013. The construction is expected to last 18 months to the end of 2014.South Sudan expects to turn the tabs through Kenya come 2015. However, some analysts say that a project of this magnitude lasts three –years citing logistical and security concerns in the general area on which the pipeline is to be constructed.

Lamu-Juba Railway line: Next   in line 

Toyota Tsusho has also announced that the project could be expanded to include a pipeline to Uganda and another to Djibouti through Ethiopia. This would raise the cost of the entire project to US$5 billion. The proposal is apparently based on non-binding MOUs signed between South Sudan and Ethiopia to construct a pipeline to Djibouti through Ethiopia. South Sudan has already signed an agreement with Kenya for the construction of the 2000KM pipeline through Kenya to the Lamu Port.

The bid for the pipeline is a clear signal that the private sector has been sucked into Lapsset, which is the largest business venture in Africa.http://eaers.blogspot.com/2012/07/lapsset-biggest-business-venture-in.html)

Already Kenya has floated tenders for the construction of the first three berths of the 32-berth Lamu port. http://eaers.blogspot.com/2012/08/lapsset-kenya-hits-ground-running.html   

Analysts in Nairobi say that the BOT bid is the best option to implement trans-national projects. It will enable one provider to easily build the Pipeline across the nations that need to transport crude oil to Lamu.

Then the users, in this case oil producers in South Sudan, Kenya and Uganda will pay for use. South Sudan has confirmed reserves of 7 billion barrels of crude oil. It is not clear the quantity of reserves in Uganda so far. Kenya has just discovered some quantity of oil whose commercial viability is yet to be determined.

 But Kenya’s Minister for Energy, Kiraitu M’Muriungi, was quoted as saying the country’s “reserves could be as much as, or even more than South Sudan’s.” Here we are talking about 7 billion barrels or more.

The cost of transporting crude per barrel is slightly less than a US dollar, says Oil price.com www.oilprice.com.  This means that the rate return for the investment is just about 14 per cent given the Sudanese oil exports only, say analysts in Nairobi. Therefore the 20 years concession the company has proposed to the South Sudan government is reasonable , they say. Should Kenya and Uganda join in, the rate will rise to more than 25 per cent, they say.

The entry of Japan into Lapsset is expected to spark off an Asian rivalry that will largely benefit Kenya. The rivalry is between China and Japan in backing up development projects in east Africa. Chinese contractors are more efficient than their Western counterparts and are relatively cheap.

These two factors have contributed to the popularity of Chinese Engineering companies in Kenya. In fact this popularity has contributed to the view that China is the largest foreign donor in Kenya. In fact, Chinese Engineering companies win the most contractors because they are efficient. The financiers include the Kenya government and African development Bank among others.

If Japan bags the Pipeline, China, it is expected, will gun for the 1720KM Railway line from Lamu Port to Juba in South Sudan. Chinese companies have bagged a string of contracts to build railway lines in Africa. Although the feasibility study found the railway line viable if build by the government, then leased to concessionaire, analysts expect a Chinese company to build the railway. Probably, China which has the financial muscle, could lend Kenya the money to build the line, they say.

The Tsusho bid is also likely to attract more bidders for other proposed PPP projects on the same corridor. These are the remaining 29 berths of the Lamu Port and three Resort cities namely, Lamu, Isiolo and Lake Turkana resort cities.