Tuesday, 17 July 2012

Lapsset: The biggest business venture in east Africa


Artist's  impression of Lamu Port
THE LAMU PORT SOUTH Sudan- Ethiopia Transport Corridor (Lapsset), is the biggest business venture ever to be undertaken in east Africa and probably beyond. It is a juicy venture. The returns are mouth-watering, ranging between 14 per cent and 24 per cent for some of the projects. It will serve in excess of 100 million  in Kenya, Ethiopia and South Sudan.

The venture Comprises of thousands of kilometres of Highway. Railways and oil Pipelines, three resort cities, a sea port with 32 berths and two international Airports.  According to its feasibility study,the project  is to be undertaken on a Private- Public Partnership (PPP) basis. The consultants, Japan Port Consultants, estimates that the corridor willcost  US$23 billion.

There is something for everyone in the project for every sector is involved. According to an analysis by Kenya’s Ministry of Transport, Lapsset, comprises of; 1,710 KM of standard Gauge railway line, 880 KM of a standard highway, 1260 KM of crude oil pipeline, 980KM of white oils pipeline, a 120,000 bpd refinery, 32 berths of a sea port covering a 9km area among others.

There are three resort cities whose major goal is to increase tourism in the arid but high potential lands. The cities, to be driven by the Tourism Ministry, are Lamu, Isiolo and Turkana resort cities.  Already Isiolo city, to be built at Kipsing Gap, has been Okayed by the local authorities. It will cost some US$220 million. The construction of the US$12 million Isiolo international airport is on-going.

 Lamu resort city and the international Airport, it is expected, will take off together with the Port and other facilities. It is also expected that with the Discovery of Oil in Turkana, the Resort city here too has an added advantage.

Although components of the project could be developed on PPP basis, a majority of the components,  it seems, will be developed by the kenya government together with its partners in the east. Even the consultant has recommended that the venture would be viable if private sector were to lease the infrastructure from the government, rather than participate in building them.

 This creates room for development partners in east to come in. The east is defined to include China, South Korea and Japan. The Chinese have shot the first volley. The Chinese Deputy Minister for Trade, Chen Jian, on a recent visit in the country, said China would provide Kenya with critical expertise on the project. This, analysts say, is likely to have Japan sit up. The minister virtually promised  funding of Chinese companies to do the work.

A Japanese consultant did the feasibility study, and the Japanese are also said to be interested in a piece of the Lapsset action. The country has in the recent past witnessed increased activity between China and Japan in funding infrastructure projects. The same rivalry could be extended into Lapsset, say observers.

Even then, there is plenty of activity on Kenya’s second transport and economic corridor over the next 20 years or so. Already, the government has set aside some US$300 million for the construction of the first three- berths at the Port of Lamu.

The three are; a general cargo berth, a bulk cargo berth and a container berth. These three will be used to transport material for the development of the corridor.

The entire port itself will cost an estimated US$3.5 billion. Located on 1000 acres of land at Manda Bay within Lamu, the Port will comprise of 32 berths three of which will be financed by the Kenya government. The other 29 will be built on PPP basis.

A 1,710 KM Railway line from Lamu to Juba in South Sudan will be constructed at a cost of US$8.1 billion according to Kenya railways Corporation, www.krc.co.ke. The  feasibility study recommends a lease rate of US$343  Million a year in case of a PPP. The study calculated that the freight cost will be as low as US$0.98  per ton- Kilometre for break bulk; US$0.65  ton- KM for container and US$ 0.131 for bulk cargo.
The line is seen as the beginning of the Equatorial Land Bridge linking the Port of Lamu on the Indian Ocean to the East to the Port of Doula in Cameroon on the Atlantic Ocean to the West. Such a link, it is envisaged, will cut freight travel time by at least two to three weeks and increase shipping lines’ turn-around times and hence their revenue.

The bulk of the entire cost of the Lamu-Transport corridor will fall on Kenya. At the peak of the project, between 2013 and 2018 sources say, it is expected that the Kenyan government will be spending about 6 percent of the country's Gross Domestic Product or 16 per cent of its annual budget on the project. The project is in turn expected to generate an additional five percent increase in Kenya's GDP once operational.

At the time of the feasibility study, oil had not been discovered in Turkana County. This discovery raises the viability of the project on Kenya’s economy. Some observers are looking at an EIRR greater than 25 per cent. Its contribution to kenya's GDP will be even higher than the projected five percent.
 Related Stories     http://eaers.blogspot.com/2012/02/kenya-to-begin-construction-of-gateway.html 
                                http://eaers.blogspot.com/2012/04/awaiting-birth-energy-cities-in-kenyas.html                                        

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