Tuesday, 23 April 2013

Lapsset Corridor:US$500million down $23billion to go

 The first three Berths: Contract Out.

THE KENYA GOVERNMENT has shot the first volley in the proposed development of the Lamu Port South Sudan Ethiopia transport corridor, Lapsset. It has awarded the first contract in the US$23 billion project. 

The contract for the construction of the first three berths of the 32-berth Lamu Port will cost US500 million and is fully funded by the Kenya government.
A consortium of Chinese construction companies led by China Communications Construction Company has won the contract.

The work includes; the construction of; one general cargo berth, one bulk cargo and a container berth at Manda Bay, Lamu. Lamu port is designed to be a mega port, receiving any post-panamax vessel. Consequently, all berths will be dredged to a depth of 18.5 Metres.

Other works include construction of; a 113 Ha hard standing yard, internal roads, Administration buildings, slipways and workshops for small crafts and associated infrastructure such as water supply, storage and reticulation; Power and ICT infrastructure.The three-year contract is expected to begin later in the year.


Lappset is the second largest business venture to be undertaken in east Africa.  Read http://eaers.blogspot.com/2012/07/lapsset-biggest-business-venture-in.html. The largest is the US$42.5bn electricity generation project in Kenya. Both projects are pillars of Vision 2030, Kenya's long -term development blue-print and are expected to be fully functional by then.

Oil Pipeline: was first to attract a suitor. It could get sweeter.
The awarding of the contract is seen as a first volley by observers, as it underscores the government's seriousness in the development of the corridor.  On completion, the three berths will be used to transport materials for the construction of other components of the Lamu Port South Sudan- Ethiopia Transport corridor (LAPSSET).

 These include; a 1700 Km long high speed railway line, a 1700 Km long a highway; a 2000KM long crude oil pipeline, a 120,000 bpd refinery, a 32- berth sea port, three resort cities and two international airports. Except for the construction of Isiolo international Airport, which is one of the two international airports on this corridor, other projects are on the design stage.


Although Lappset is a juicy venture with returns ranging between 14 per cent and 24 per cent for some of the projects, doubting Thomasses were waiting for a sign that it is feasible. Now they have a sign.

The Corridor, to be developed on a Private- Public Partnership (PPP) basis had attracted a few suitors but current is expected to spawn renewed interest in the corridor. Among the first suitors on the scene was 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. Read http://eaers.blogspot.com/2012/08/toyota-bids-for-africas-largest-ppp_20.html .

According to Reuters, The Development Bank of Southern Africa, DBSA is hitching to be the lead arranger for the project. The Bank is said to have dangled an offer of US$1.5 billion to fund the project

 Apart from the completion of the three- berths, another sign of the times is the commercial viability of crude oil discovery in Kenya, also along the same corridor. Read http://eaers.blogspot.com/2013/02/oil-kenyas-game-changer.html. This improves the prospects of the corridor from good to Mouthwatering.

In addition to roads, rails and Pipelines there are also three resort cities on the corridor whose major goal is to increase tourism in the arid but high potential lands.  However, due to the discovery of oil along the corridor, these cities are likely to turn into energy cities. Read http://eaers.blogspot.com/2012/04/awaiting-birth-energy-cities-in-kenyas.html . Regardless of their changed status, the cities will be developed by the Tourism Ministry. 

Although components of the project could be developed on PPP basis, a majority of the components, it seems, will be developed by the government together with its partners. 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.

2 comments:

  1. That is really great Musyoka.
    But I need your kind observation that helps in clarifying the role of the Kenyans themselves in the long-run operation of such projects, even under extreme negative situations.
    In other words, aren't there any native African, mainly (public), companies that participate, from the start, in establishing such projects for long-run operation and maintenance to reduce dependence on the foreign companies from wherever, hence support your balance of payments in the long-run?
    The sanctions of the USA on Sudan, for example, led to the stoppage of our inherited colonial British established railways and airlines because the USA stopped, by its own laws, and as a monopolist, the exportation of core spare-parts to our Sudanese railway and airlines corporations. The operations stopped because we don't have the alternative international windows, and at the same time we don’t have the facilities to produce those, spare-parts and they became a white-elephant on our budget.
    I hope you elaborate on this point as a long run strategy.
    (Please have a look to such an article, as an example of what I mean, as South Sudan was sanctioned by The Sudan at: http://www.bloomberg.com/news/print/2013-04-22/imf-urges-sudan-to-use-3-billion-oil-payment-to-support-reforms.html

    Thanks Musyoka for such interesting article.

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  2. I am not sure I Understood your question. However, As the essay shows, the government will be build the infrastructure,and lease it to the private sector to operate. the private sector for instance buy the rolling stock from wherever they choose.
    The private sector operators will include both kenyans and foreigners.

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