Monday, 10 July 2017

The Nairobi-Mombasa highway to be a toll road

Snarl-up at Kibarani Mombasa: 
Traffic jams begin at the Island.
The expanded Nairobi- Mombasa Highway will be a toll road, we can report. The highway will cost a whopping US$2.2 billion (Kshs230 billion at current exchange rates) which, according to the feasibility study, will be recouped in 25 years.

This is one of the five major highways slated for tolling. Others are: the Nairobi- Nakuru- Mau summit road; the second Nyali Bridge; the Thika- Nairobi road and the Southern By-pass also in Nairobi.

The implementation of the projects under PPP model means the projects will be undertaken by the private sector who will recover their investment in the course of the life of the projects.

Currently, transport cost accounts for around 30% of the cost of goods and services across the region due to poor infrastructure and the thousands of man-hours lost in traffic daily. These projects will, to a large extend, cut down costs for motorists in terms of fuel savings, lost man hours and vehicle maintenance costs.

The 485km highway will according to government sources, be expanded into a six lane highway from Mombasa to Nairobi.

It is expected to ease traffic snarl ups at the highway which is a critical artery for trade in the region for, it connects the Mombasa port to hinterland including Uganda, Rwanda and Burundi.

It has remained a single-carriage way for long despite increased traffic of buses and trucks ferrying goods and people daily. To enhance its effectiveness, the Nairobi-Nakuru-Mau Summit road is also slated for expansion.

 The government of Kenya is negotiating with the US export-import (Exim) bank for the financing of the multibillion-shilling project and expects to close the deal soon.

“We expect and hope that we are going to start the construction of this road in the next one year once we complete the talks,” said Peter Mundinia, the Director General, Kenha. “This is a major road that requires upgrading to curb the frequent traffic snarl-ups,” he added.

Even then, works have already started at sections of the highway notorious for traffic jams. These sections include the Mombasa-Mariakani section and the Athi River-Machakos turn off along the busy road.
The Athi River-Machakos turn-off, a stretch of 20km will cost US$51.2m the project is being constructed by the China Railway 21st Bureau Group Company Limited.
 The 20km section will be made a ual carriage and will have two new bridges one measuring 98m for Mombasa bound traffic and another of 50m for traffic headed to Nairobi.
The Mombasa bound will be the longest bridge along the Northern Corridor.

The KeNHA expects the upgrade of the turnoff to be completed in 2018. 

Tuesday, 4 July 2017

Africa to launch single air transport market in 2018

Africa to launch single air transport market in 2018

Africa plans to have a single air transport market by 2018 , David Kajange, the Head of the Transport and Tourism Division at the African Union (AU) has announced.
Over 40 countries are expected to be signatories by then. So far, 20 African countries out of 55 have subscribed to the African single air market.
Mr Kajange,  was speaking during the ongoing 29th AU summit, which is underway in Ethiopia’s capital, Addis Ababa.
The single air transport market is one of the goals of AU’s Agenda 2063, aiming to connect Africa through aviation and other transport infrastructure to achieve integration and boost intra-Africa trade.
The single air transport market also aims to boost African nations’ tourism, economic growth and economic development.
“Africa became the most expensive air transport market in the world because of individual nations’ policies and regulations that hinder air connectivity,” said David Kajange.
According to Euroavia International, a firm specializing in consulting services for airports and aviation industry, air transport in Africa is on average twice as expensive as the world average.
Since 1980s, an African Open Skies vision has been there, culminating in the adoption of the Yamassoukro Decision of African Heads of States of November 14, 1999.
Between 2004 and 2014, an increasing business and tourism sector and growing middle class, the market share of African airlines has dropped dramatically despite sustained economic growth on the continent.The loss of market share by African airlines has been estimated by the AU to have been from 60% to below 2%.
Meanwhile the AU is mediating to resolve potential electoral disputes in the Democratic Republic of Congo (DR Congo) and Gabon. Minata Samate Cessouma, Commissioner for Political Affairs at the AU, said that, resolving electoral disputes is at the heart of ensuring welfare of the continent’s youth.
 From Construction Review

Sunday, 18 June 2017

The Central Corridor is no Option for Uganda

Ugandan Line designed  for Double tack wagons
 Tanzania’s efforts to woo Uganda to abandon its Railways link through Kenya in favour of the Central Corridor have come to naught, we can report.
A paper by the Uganda Ministry of Works and Transport has dismissed the route as a low priority route for Uganda.

The document, seen by this publication also defines the key factors in the decision to invest in a modern railway line.

Top on the agenda is savings in transit time, robustness, reliability, and maintenance costs in that order.  In all these variables the central Corridor -which traverses Tanzania- scored poorly, making it a no option for Uganda.

The paper, an analysis of the SGR projects in East Africa, demonstrates why the central Corridor is not an option for Uganda. It demonstrates that the Central line is three days slower than the Northern Corridor even if they are built of the same standard. Dar-Es-Salaam port is 1548 Km away from Kampala compared to Mombasa port which is 1250 km away.
This is an expensive but reliable model

Of the 1548 Km, 1228Km are on land and 320Km are on water- across Lake Victoria. This in itself calls for investment in sea-going vessels and improvement of the Ports in both Mwanza in Tanzania and Port bell in Uganda.

Even with these investments, the document demonstrates, the Tanzanian route in not an option for Uganda whose ambition is to be a middle income country with a GDP per capita of $9500 a year by 2040.

To get there, Uganda needs to attract investment into heavy industry producing “for high-end markets in Europe, North America, Asia and other developed countries.” Consequently it needs fast, reliable, robust and efficient transport system

 In terms of robustness of the line, the paper demonstrates that the Northern corridor SGR, which is Class One Chinese standard, has a capacity of transporting more than 8000 containers per day in 40 trains each carrying 216 containers. The Tanzania route on the other hand, is restricted to 216 containers due to vessel restrictions.

 It will take 5 ferries to carry the 216 containers on  the 320 km trip across Lake Victoria. Each ferry has a capacity of 44 containers. To off load and load and transport the 216 containers across the Lake will take an additional 15 hours, says the paper.

This will raise the total transit time on the Tanzanian route to more than 72 hours. And the report adds a caveat, “that is being optimistic.”  To the contrary, the Kenyan route will take 24 hours to transport freight from Mombasa to Kampala, it says.

Comparing the Ports capacity, the paper says that the Mombasa port is three times bigger than the Port of Dar-Es-salaam. The paper, though, was published before Tanzania inked the deal to expand the Dar- port.

The paper says that the central corridor is not popular with Ugandans who transport only 0.5 million tons of freight per year compared to the Northern Corridor which ships more than 10 million tones a freight a year.

 It questions Tanzania’s contracting mode which, it says, places a lot of risk on the employer- in this case the Tanzania government. The Model- Design and Build- is fraught with risks due to potential for design and construction errors that could impact negatively on train operations. 

The Ugandan Model is ECP/Turnkey which places all design and engineering risks on the contractor. Here the Contractor purchases the Materials and Equipment including Locomotives and Commission’s them.

In terms of reliability, the paper tears apart the Tanzanian and Ethiopian lines. Both are low quality compared to the Northern Corridor SGR. The Ethiopian line is Class 2 Chinese standard while Tanzania opted for AREMA standard. Both are designed to carry a maximum of 20 million tons a year. The Northern corridor -which traverses Kenya-is designed to ship up to 35 million tons a year.

 The implication here, says the paper, is that should demand for railway services rise in both Tanzania and Ethiopia, they will have to build additional lines to meet demand.  The Northern Corridor line, is sufficiently robust to accommodate future demand increases.

The paper advises that for projects designed to last 100 years, the initial sunk capital should not inform the decision to invest. It argues that the life time maintenance cost of a project should inform the decision. In the case of SGR says the paper, the Maintenance cost for the Class one line are lower than the other two.

Wednesday, 24 May 2017

EPAs: Why Kenya's trade with EU will not suffer

Kenyatta: Kenya signed and Ratified EPAs
 Contrary to popular opinion, Kenya's trade with EU is unlikely to suffer any loss should Tanzania and her minions refuse to sign Economic Partnership Agreement. In fact Kenya and Rwanda could gain from this reluctance.
The European Union has stonewalled a fishing expedition by EAC to delay the signing of the Economic Partnership Agreement.  The Union has rejected any discussion on “sanctions in Burundi until the political situation improves.” This is a sign that the EU is losing patience with the laggards.

The reluctance by three EAC member states, led by Tanzania, to pen the Free Trade Area deal with the European Union has turned into a fishing expedition.

A fishing expedition is a situation where one  begins to look for wild reasons to justify a wrong decision. 
Kagame: Rwanda signed and ratified EPAs
 Initially, Tanzania, which has refused to sign the deal twice-in 2014 and 2016- argued that the deal with stymie her industrial growth. Then termed it “colonial” before “ducking off the radar to hoist “sanctions against Burundi.”

 In the last Heads of States Summit held in Dar-Es-salaam last Sunday, Tanzania’s worry about the threat to industrialization simply disappeared and was replace by “sanctions against Burundi.”

This amounts to introduction of red herrings to delay commitment to EPAs. 

The reasons are not hard to find; Uganda, Tanzania and Burundi are classified as Least Developed Countries, LDCs. These countries were handed a lifeline to trade with European Union under an arrangement called Everything But Arms, EBAs which enables them to export to European Union duty-free and quota-free. 

Only Kenya is classified as a developed country which does not qualify for EBAs. Kenya is therefore the greatest beneficiary of EPAs, which  grants her the same benefits as EBAs.

Second, a look at the trade data is also telling. Kenya dominates exports to the European Union. For example in 2016, the whole region, that is EAC, earned 2,443 billion Euros worth of exports. Of these Kenya pocketed 1,280 billion Euros. That is 52.4 per cent of the total exports. Tanzania was a distant second, earning Euros 632 Million accounting for 26 per cent of the total while Uganda earned Euros 443 million accounting for 18 per cent of the total earnings. Rwanda earned the rest, that is, Euros 88 million.

 Analysts fear that the growing European Union impatience with EAC could soon result in the withdrawal of EBAs, which is simply an arrangement born out of EU generosity. If tossed out of the window, both Uganda and Tanzania will be locked out of the EU market with dire consequences to employment at home.

 Tanzanian exports to EU are dominated by the beverages and Tobacco category which accounts for 31.8 per cent earning a cool Euros 201 million in 2016, food and live animals was second accounting for 31.1 per cent earning Euros 197 million.

These basic agricultural commodities are the largest employers in all developing countries. Any disruption of their trade has dire consequences to poverty alleviation and employment.

Unlike Kenya and Rwanda which have already signed and ratified the deal,Tanzania and” her friends” do not have a fall back option should Europe play hard ball. Kenya and Rwanda can now opt to use “variable geometry” which  grants them the right to go ahead and single-handedly pursue trade deals meant for the bloc.

 Since the European Union has rejected the introduction of the Burundi sanctions into EPAs agenda, the two signatories are likely to  pursue their agenda, That means that , contrary to what many say, Kenya and Rwanda 's trade with the EU is unlikely to suffer should the push come to shove.

The trade data exposes Tanzania’s fear of a threat to her industrialization agenda as hollow. Her imports from EU are dominated by machinery and chemical imports which account for 67 per cent of the total imports. While her exports of manufactured goods, largely mineral exports, accounted for 18 per cent of the total.

Such facts must have emerged during the “encouragement sessions” that we reported about last week. This is why Tanzania ducked out of radar, hoisting Burundi sanctions instead.

Thursday, 18 May 2017

EPAs: Why we expect Tanzania to change heart

Presidents Kenyatta of Kenya and JMagufuli of Tanzania:
Working at Cross Purposes on EPAs

ACCORDING  to press reports, the European Union has announced that it is “encouraging” Tanzania to sign the much maligned Economic Partnership Agreements, EPAs.

Tanzania is being “encouraged” because she has been a reluctant bride in the proposed marriage even terming it “colonial.”

Experts in Diplomatese, the language used by diplomats, say that the word “encouraging” hides the real show. The meetings to encourage one to take certain desired action are bare knuckled events where all deck s are laid on the table. And they leave no doubt at all about the potential dangers of not taking the action. Even the public pronouncement by the EU diplomats, say diplomatic experts, is an ominous warning that Tanzania is expected to behave.

That is why the experts expect a Tanzanian about- turn on EPAs. The country is reluctant to sign the dotted lines saying that EPAs are a threat to her industrialization goals. But since she has been “encouraged,” experts expect a change of heart in the near future.

 Tanzania is in a weak position, the major reason for her reluctance to sign the deal is to protect her tax revenue base. For this reason she prefers to be an LDC riding on the generosity of the EU. She exports to the EU market under a preferential arrangement called Everything But Arms, EBAs. However, this is an arrangement tossed to the Least Developed Countries by the EU owing to her generosity.It can be withdrawn without much ado.

 Secondly, Tanzania no longer qualifies for such handouts. The country is no longer an LDC given that its economy posted robust growth for a decade raising its per capita income from a measly $350 in the early 2000s to $950 in 2015.  In fact she may have hit the lower echelons of a middle income country by now.

 Kenya was considered a developed country when its GDP per capita was $600. This means that Tanzania should long have been weaned out of EBAs. It seems like the bureaucrats in Europe have just “discovered” this fact and could soon become tightfisted.

That would leave Tanzania with no preferential arrangement to export to EU. Her exports would thus be locked out of the bloc. Can she afford such a risk?

To be fair  we should ask:  what is wrong with EPAs in Tanzania's eyes?

 An extensive review of Papers, presentations and commentaries revealed that the intense bashing EPAs has suffered in the hands of Tanzanian critics, is not wholly justified.

Contrary to critics view, the arrangement is not an imposition of the European will on poor and hapless African, Caribbean and Pacific group countries.

EPAs are negotiated agreements that are binding on both parties. It is an all-inclusive process where all stakeholders in a country or region are extensively consulted. Consequently, the agreements are the result of a transparent and inclusive process whose aim is to enhance economic development and poverty reduction in ACP countries.

Economic Partnership Agreements are an attempt to create a free trade Area (FTA) between the European Union and the ACP Countries. They grant exports from ACP countries duty-free and quota free-access to the European Union market in a secure, long-term and predictable manner.

 EAC member states initialed the framework for EPAs negotiations in November 2007. That initialization allowed the EAC members to continue exporting to the EU on preferential terms as they negotiated the EPAs.

 An evaluation of the impact of the initialed framework by the Uganda’s Ministry of Tourism Trade and Industry shows that; Uganda’s tariff free exports into EU have increased. It gleefully reported that Uganda can now export meat and other livestock products tariff free. These products previously attracted taxes ranging from 9.6 Euro per 100kg to 176.8 Euro. “Now,” says the report, such products do “not attract any taxes when exported to the EU.”

The key feature of EPAs is reciprocity. This is to say that, EU exports into ACP group should also be granted duty free access into ACP group markets, including into EAC states. This is why Critics fear that EPAs are being used to open the ACP group markets to European products.

Far from it, EPAs are based on the principle of asymmetry which calls for a phased out removal of all trade barriers established between the EU and the ACP countries since 1975. The phase-down period is 25 years from the date the EPAs are signed.

Before the entry of EPAs, trade relationship between EU and ACP group were governed by the Cotonou agreement. This trade regime, which expired on December 31, 2007, allowed ACP group exports into the EU market duty free. Its expiry without an alternative arrangement would have closed the EU market for ACP- and especially EAC -exports.

And Uganda would not have diversified her exports to the EU to include” meat and other livestock products.”

 Cotonou was discriminatory in that, while EU exports were charged duty in the ACP group markets, the latter exported tariff free.  This arrangement contravened the WTO rules. Therefore it was illegal in the eyes of WTO members who vigorously protested against such discrimination.

EPAs were thus initiated in order to comply with the WTO rules which bar non-reciprocal and discriminating preferential trade Agreements. They were also designed to keep the EU markets open for ACP countries on preferential terms.

The market would have been lost if EU fully complied with WTO rules of taxing all imports into its market. This would have been a major blow to the economies of ACP countries, including East Africa.

The EU market absorbs more than 20 percent of East Africa’s exports, making it the largest trading partner. This is the size of market the expiry of Cotonou agreement would have blocked. And the effects in terms of foreign exchange generation and employment in the East Africa would have been devastating.

In addition to allowing duty-free and Quota free exports to EU, the agreements also encourages the creation of regional free trade areas within the ACP. Such regional blocs, RTAs, among them EA Common Market,  to liberalize trade among them thus creating a large market for their weak industries.

Regional trading blocs also synchronise their economic policies and structures so that investment in the blocs becomes predictable. In effect EPAs will also increase trade and economic co-operation within ACP group.

The 120 million people -five Country, East African Community, EAC, is one such Regional trading bloc. It has witnessed increased trade between the countries. Some reports indicate that such trade has yet to reach full potential meaning that the regional has room to expand its trade with itself and reap the full benefits.

In the frame work, East Africa has offered to liberalize 82% of imports from the EU over a twenty five (25) year period. Initially, it was to grant duty free access to 64% of exports in 2010; 16% between 2015– 2023; and 2% between 2020 –2033 if the agreement was signed before 2010.   

This has been the bone of contention with critics accusing the EU of plotting to kill the ACP economies by flooding them with EU’s products.

 However, the Ugandan evaluation  among other sources indicates that a large proportion of 64 per cent that is offered initially is already liberalized by EAC’s common External tariff, CET. These imports fall into the category of raw materials and Capital goods, which are zero rated in the East Africa Community.

The paper indicates that the local business community is the beneficiary for it imports either raw materials or Capital goods as inputs for their production process. That they are tax-free means that the business community’s financial burden has been reduced.

In addition, nearly one fifth of EAC products will never be liberalised forever. This is because they are critical to basic survival in the region. Some of the products on the Sensitive Products list include: live animals; meat and edible meat offal; fish and other marine products; dairy produce; natural honey; cut flowers and ornamental foliage; edible fruit and nuts; peel of citrus fruits or melons; coffee, tea and cereals among others.

 To ensure that ACP countries do not negotiate away family jewels, EPAs have a rendezvous clause which allows countries to refuse to negotiate certain aspects of EPAs until they understood them.

Wednesday, 10 May 2017

The Eurobond saga: The scandal within the "scam"

Mpeketoni attack: Designed
 to sabotage the Eurobond
THE EUROBOND saga in Kenya was a well choreographed  vendetta campaign launched and  bankrolled by corrupt businessmen who lost big money contracts during the current regime, we can report. In their vendetta, they found a willing partner in the broke ODM Party and a few intellectuals, who also lost lucrative business contracts in the current regime.

All became hired mercenaries for the crooks who lost their bids for mega projects such as the green field project that was to build a second terminal at JKIA, the SGR and even the Lapsset project among other milking cows.
 The saga suggested that an estimated US$1 billion (kshs 87 billion) of the US$2 billion (Kshs 175 billion) Eurobond raised in June 2014 was stolen.  Kenya issued a US$2 billion Eurobond in June 2014, on the Irish Stock Market.

The Aftermath: A Police station burnt down
The bond, which was oversubscribed by 400% hit the market on the same day that Al- Shabaab struck at Mpeketoni in Lamu killing more than 100 people.  The news was splashed globally.

 Some analysts considered the brazen attack in Lamu an attempt to sabotage the Eurobond issue by projecting the country as an insecure investment destination.

Nonetheless, it did not dampen the investors’ appetite for the Kenyan debt paper. Investors applied for US$8.8 billion worth of the Kenyan debt paper. Kenya accepted only US$2 billion.

Analysts attribute this good response despite the bad news to confidence in Kenya’s economic fundamentals.

  A paper trail of the alleged saga did not reveal any wrong doing. It demonstrates proper transfers of the money from the lead bank to the central Bank of Kenya. According to the Prospectus for the Bond, the bond’s Managers were JP Morgan Chase Bank, Barclays Bank, standard Chartered Bank and Qatar National Bank.

 JP Morgan was the lead manager meaning all the moneys collected from the sale of the Kenyan Eurobond ended at an account in JP Morgan Chase Bank which handled all the US$2 billion pending instructions from its customer- the government of Kenya through the national Treasury.

The government authorized transfers of the Money from the receiving Bank (JP Morgan Chase) to the Central Bank of Kenya using forms Called PA forms.  The first transaction in this account was the payment of US$ US$604,560,737.50 to pay for a syndicated loan borrowed by the previous regime to buy the controversial BVR voter registration Kits.

  That left a balance of US$ 1.39 billion in the JP Morgan Chase bank. On July 3rd 2014 an order for transfer of US$ 395,439,262.50 was issued and the Money was transferred to Central bank of Kenya, which duly credited KES 34.6 billion to the government’s Kenya shilling account No 1000003987 at the Central Bank at the exchange rate of KEs 87.62 to the US dollar coming to KES 34,648,388,180.25 (Thirty four point six billion shillings).

 In effect, the Central bank of Kenya, the sole custodian of all foreign exchange reserves in Kenya, bought all the dollars transferred to the government of Kenya by JP Morgan. That left a balance of nearly US$ one billion -to be precise US$999,018,457.60- in JP Morgan’s Kenya sovereign Bond account. That is, Nine Hundred and Ninety nine million US dollars.

 This amount was transferred to the Central Bank account in the Federal Reserve Bank of New York. The Fed is the Central Bank of the United States of America, and does not open accounts for individuals. According to the paper trail, this amount was transferred to the fed on September 10, 2014, the whole lot of nearly one billion dollars.

 Before the money was transferred, the Treasury authorised the Central Bank to transfer the Money in a letter dated September 3rd, 2014. The Central Bank advised the Treasury to instead close the account since the transfer was the outstanding balance in account Number 603149985 at JP Morgan Chase. The authority to close the account was issued by the Accountant General at the Treasury the same day Vide letter REF: AG: Conf.17/01/1vol.1/8 dated the same day.

 The letter says in part “authority of the Treasury is hereby granted to enable the Central bank to transfer the balance into account no 100212764 in the CBK and to close the Sovereign Bond account.” Hence the money was transferred to the CBK’s account at the Federal Reserve and the equivalent in Kenya shillings was credited into the government account at CBK on September 9th, 2014. The intro In the Swift message reads’ “Financial institution transfer for own account.”

 A statement from the Central Bank shows that this amount was credited into Government of Kenya’s account on September 8th, 2014 at the ruling rate of KES 88.55 to the green buck. This came to a total of Eighty eight billion four hundred million shillings (Kshs 88,400,000,000). The statement also shows how the money was transferred locally until the account balance read zero.

From the foregoing four things are clear: Only the Central Bank is authorized to open and operate foreign accounts in behalf of the Government of Kenya. It is also the CBK that closes the accounts. This is what it did with the account number 603149985 at the JP Morgan Chases Bank.
Second, the Central bank is the Custodian of all foreign exchange in the country and third, the government of Kenya does not hold its money in foreign currency but in Shillings.
 Fourth, it is clear that the account at the Federal Reserve was not opened for the Eurobond, rather it was the Eurobond proceeds that found their way into a legal account of the Central Bank of Kenya at the Fed.
Fifth, there was no further external communication over the sovereign Bond since it was already in the country and being used.

The money trail shows no signs of a crime committed by anyone nor any missing dollar of the sovereign bond. That was the finding of all investigating agencies and the DPP who closed the file “for lack of evidence.”

 So  how was the Eurobond saga born? Analysts feel that, the failure of the  Mpeketoni attack to dampen demand for the debt paper gave birth to the second plot.  The analysts see a connection however weak. They point out that the failed Okoa Kenya campaign was launched at just about the same time.

The campaign was led by ODM, which also  "exposed" the Eurobond scandal"  claiming upto US$1 billion was stolen. But how did ODM get its figures?  As stated earlier, the party got this information from the businessmen. A search in the internet brought some very interesting findings. Among these is: ODM has surrounded itself with a Cabal of businessmen and intellectuals who lost mega deals during the current regime.

They are now bankrolling ODM in a bid to hoist it to power in 2017. Among the number is Jimmy Wanjigi and the late Jacob Juma.  Jimmy Wanjigi’s Followers on his tweet page read like who-is-who in CORD including Raila Odinga, Senator Muthama, Kalonzo Musyoka, Kethi Kilonzo, and Jacob Juma.

  Wanjigi, the King pin deal maker is said to be unhappy with the Kenya regime which has denied him lucrative deals even though he supported – and Financed romours have it- jubilee during the last election.  He fell out with the regime almost soon after their election. Consequently he is bitter man working to change the Jubilee administration.

According to their loose Cannon, the late Jacob Juma, CORD will take over Presidency this year. Juma in a tweet in March last year tells us why Wanjigi, who is bankrolling CORD, is furious with the Uhuru administration. He lost the lucrative US$650 million (Ksh 65 billion) Greenfield terminal at JKIA whose construction was cancelled last year. Juma in his tweet told Jimmy to “forget the warehouses at JKIA. When CORD takes power, we shall built a US$2 billion (kshs200 billion) new and Modern Airport.”

Juma himself lost a mining license that the Court found he had acquired illegally. The Mining license to an outfit called Cortec from Canada, was for mining rare earth which according to the parent company of the local outfit was worth Kshs 297 billion. He thus became a bitter critic of the government, always featuring prominently in “scandals” touching of the Deputy President, William Ruto.

 Juma was also a key player in the Eurobond saga, even “giving evidence” before the Investigating agencies. His testimony was part of the other testimonies that the DPP rejected as inconsequential in terms of evidence.
 Sources, credit Juma with being “brave but indiscrete.”  They say that he did not see the legal consequences of the scandal. That is why he dared where other, who knew their evidence was inconsequential, avoided. They Kept away from the investigating agencies for fear of the legal consequences.

 Among those who avoided the investigating agencies were Raila Odinga the ODM leader. He refused to face off with these agencies on flimsy grounds. He at one time almost mobilized his fanatical adorers to cause unrest when it appeared like he shall be arrested by the EACC. He also avoided meeting the CID and the PAC.

He knew that such a move could have landed him in Jail if it was found that he willfully lied to government officials.

 He left that to his Lieutenants including Sarah Elderkin who is said to have been former Raila aide, and David Ndii who became embittered when he lost his contract as a consultant for Amnesty International.

 Raila revived the alleged “scandal” in a recent interview with a local TV channel after he was anointed the NASA Presidential flag bearer, saying that the Controller and Auditor General could not find the Money in Federal Reserve when he visited the US. Incidentally, the CAG is yet to produce a report on his mission at the Fed last year.

Monday, 8 May 2017

June 2017: The month of game changers in Kenya

The High Speed locomotive to be running on SGR

THE MONTH OF June 2017 is significant in Kenya’s history. Three game changing projects, two in infrastructure and one in oil- will come live. These are the commissioning of the Standard Gauge Railway and also the largest wind Power project in Africa.  By Mid- June, our first barrel of oil will sail to the market-either in China or India.

The three are game changers because they could turn out to be jolt economic growth needs to cross-the 8.00% mark. They will add a strand on Kenya’s financial muscle by either saving consumers some money or earning an extra dime.  The two infrastructure projects will result in lower cost of doing business in the country leading to low consumer goods prices in the near future.

 Lake Turkana Wind Power which will generate 310 MW into the national grid is raring to go eleven years after it was conceived. As at the end of February, she had erected 347 out of 365 turbines in readiness for start of business in June this year. This is to say that come June 2017, Kenya’s electricity generating capacity will go up 18 per cent to more than 2022 MW.

Lake Turkana wind power is the largest wind power project in Africa. The US$763 million project is the largest private sector investment in the country’s history.  It has signed a 20-year Power Purchase agreement (PPA) at a fixed price of $0.07 per KWh with Kenya Power and Lighting Company (KPLC). KPLC is the sole distributor of electric power in Kenya.  Kenyans can therefore brace themselves for cheap power in future.
A Crude drilling site in Lokichar
Wind power, coupled with geothermal and  hydro-electric power that already accounts for more than 70 per cent of Kenya’s electricity supply, will  make Kenya nearly 100 per cent dependent on environmentally-friendly green  energy sources and eliminate power fluctuations. 
Currently, Kenya uses the expensive Thermal power to smooth out fluctuations. Thermal power will gradually be retired from the national grid thus eliminating diesel prices fluctuations from our bills.

Also raring to go is the high speed Standard Gauge Railway in June. It is expected to also load some more savings for the Manufacturing sector in particular. The 600 Km Mombasa -Nairobi section of the Northern Corridor cost $4.1 billion to build and equip, including Locomotives, passenger coaches and wagons.

 The project will be commissioned 18 months ahead of schedule despite challenges which involved, protests by land owners, litigations and the usual political noise. The project is also facing viability issues as other partners,-Uganda and Rwanda- keep changing their positon on the partnership.
 That it will begin operations 18 months ahead of schedule, means that Kenyans will enjoy a bonus in terms of contribution to our national wealth creation of 18 months. It could also a good learning ground to help the undecided partners to make up their minds.

 The high speed railway line will cut travel time and freight costs significantly. Passenger travel time between Nairobi and Mombasa will be cut to a maximum of five hours from the current 10- hours by rail and from Seven hours by road. Freight travel will also be significantly cut to just 12 hours from loading to delivery down from more 24 hours currently. It will save Kenya an estimated US$2 billion a year, in freight costs.

The train will ship 40 per cent of cargo off-loaded at the Mombasa Port. This will reduce congestion at the Port, congestion of the Mombasa-Nairobi Highway and thus improve travel time by road on the same highway.  The passenger train will carry up to 960 passengers per trip. That is 20 -fifty passenger buses also off the road.

Some reports indicate that the cost of transporting a ton of freight per kilometer will decline by 40 per cent to $0.08 per from the current $0.20.   However, according to Kenya Railways Corporation, the optimal tariff including passenger fares will be determined in the six month period between- June and December. Even then, reports indicate, manufacturers have factored in the Railway as part of their logistics next year.  Low Freight charges by rail are expected to force down the cost per ton by road.
 Also during June, Kenya will export her first ever barrel of crude oil to the international market in what is called Experimental Oil Production, during which she plans to be exporting 2,000 barrels of crude a day. All contracts for the exercise are already in place and raring to go.
Kenya’s oil from Lockichar basin in Samburu County, is said to be among the top grade crudes in the world that earn a premium price in the world market. That will add a strand on Kenya’s financial sinews.
That crude exports-even though on an experimental basis- will add a strand on Kenya’s sinews is supported by other actions that are not reported in this piece. Simply put, the partners in the project, are gearing to launch all studies and designs including the Front End Engineering designs FEED in July. 
Also the Invest decisions will also be made during the second half- of this year.  Construction of the 861n KM pipeline from Lokichar to Lamu Port will commence soon after the FEED and be completed by 2021 when Kenya expects to go full throttle  exporting 100,000bpd.

Monday, 17 April 2017

Kenya's is the cheapest SGR in East Africa

Mombasa Super Bridge on Kenya's SGR
 KENYA'S STANDARD GAUGE RAILWAY  is the cheapest in East Africa, we can report. It cost US$4.43 million per kilometre  while Ethiopia spend $5 million, Eritrea $ 5.05 and Tanzania's central Corridor will cost $5 million  for the same length.

This is despite the fact they are upgrades on existing lines and  and are of inferior quality to Northern Corridor SGR.

 Whispers have it that, the central Corridor is a carbon copy of the Ethiopia-Djibouti line in that the scope of works include upgrading the one-Meter gauge Railway line to 1.435 meter gauge and electrification at25 kV.   Going by the costs in Ethiopia and Djibouti,  upgrading a kilometer will cost Tanzania some US$5.0 million.
We will ignore the nagging question whether Tanzania can generate enough power to run a train.

 Already, the 300 Km  Dar- Morogoro section, whose construction the President launched last week, will cost a whopping $1.215 billion according to Tanzania’s Daily News. That works out to $4.05 million per Kilometer and that excludes land compensation and electrification.
A Double stacked Train
 These new figures put paid to the allegation the Kenyan, SGR, though a green field project, is the most expensive in East Africa.  The numbers also answer the  the critical” question: Just what is the difference between the Northern Corridor Standard Gauge Railway and the other two in east Africa?  If the numbers here are anything to go by, then myth that, the Northern Corridor SGR is expensive is debunked. Kenya’s green field SGR is the cheapest in the region at $4.43 million per Kilometer.  
 The Debate about the three SGR lines centre on cost leaving out other factors at play in the costing of any SGR line.  The Northern Corridor SGR, say critics, is the most expensive in east Africa and therefore some fellows in power must have pocketed a large chunk of the money through rent seeking, the conclude.
This is simplistic.  The two are incomparable because they are different and their costs also differ.  
Here are the differences:  the Northern Corridor is Class one Chinese standard line. This means that it is sturdier and can carry more weight. The Central Corridor and the Ethiopian –Djibouti Line are class two Chinese standard, meaning they carry less weight.
An Embankment on Kenya's SGR
 The second difference, the Northern Corridor is built on rugged terrain with peaks and dips while the other two are on a relatively flat terrain. Therefore the Northern Corridor Railway line, which is the busiest Corridor in the region, must have embankments, tunnels and viaducts to keep the line as flat as possible

The third and critical difference is: The northern Corridor SGR is green field while the other two are upgrades of old railway lines. The 752.7km Ethiopia-Djibouti railway an upgrade of the metre-gauge line to a 1,435mm gauge line, and electrification at 25kV.

It seems that the cost of upgrading a kilometre including installing electric lines is a standard US$ 5 million. Here, the contractor has to ensure that a lot of engineering facets such Viaducts, tunnels and  embankments are minimized or eliminated. Where they cannot be avoided, they should be as short as possible. Cutting costs is the leading determinant.
A Tunnel

The Cost per Kilometre for a green field project does not appear standardized given the peculiar circumstances of each region and country. Further such engineering instruments as viaducts, Embankments and tunnels are not avoided or minimized. Here the smooth run of the train is a major determinant.

 These findings debunk the myth by some analysts of questionable integrity that the “Lunatic Express” which runs from Mombasa to Kampala, could be upgraded at US$200 million.

The known expenditure on these three lines thus explodes myth that Norther Corridor is expensive. In fact, the northern corridor, even as a green field project is more than $50,000 cheaper per Kilometre than the upgraded ones.

According to an investor Brief prepared for the Rwanda Government, the scope of works of the $7.6 billion Tanzanian line will include upgrading the 960 Km Dar-Es-salaam- Isaka section to standard gauge-“keeping to the existing alignment as much as possible.”

  This, analysts say, is likely to be extended to Mwanza which will mean that the upgrade will involve 1,219 KM. Tanzania will build just about 320 kilometres of green field Standard Gauge Railway between Isaka and Keza on the border with Rwanda.

Kenya’s SGR between Nairobi and Mombasa cost $2.66 billion or $4.43 million a kilometre. If the cost of the $1.44 billion contract for the supply of Locomotives and rolling stock namely; 56 Locomotives, 40 passenger coaches, 1620 wagons, the Mombasa –Nairobi section, which is 600 kilometres of railway plus the locomotives and rolling stock cost $4.1 billion.

On the second score that of carrying capacity, the class two Chinese standard line is beaten hands down.  The wagons axle load capacity is 25 tons maximum while the Northern Corridor SGR has 25 tons as the minimum axle load capacity.

Therefore the Norther Corridor line can carry more freight than the upgrade one-meter gauge lines.  Consequently wagons are double stack wagons that can carry two containers stacked one on top of the other. The wagons on the northern corridor will carry more freight per trip than the other two. In fact, 56 double stack wagons will haul 4,000 tons, what 130 trucks carry.

 On the other hand, the Ethiopian line’s only publicly recorded haulage is nearly 1, 200 tons of relief food in 2015.  That is nearly a quarter of what will be hauled on the northern corridor in a single run.

Yet,  on this simplistic analysis that the Tanzanian President, John Magufuli, according to Uganda’s Daily Monitor Newspaper, attempted to woe Uganda’s Yoweri Museveni, to discard the Northern Corridor in favour of the Central Corridor. This sounds like a pipe dream.

Here’s why; Tanzania is inviting Uganda to abandon its SGR ambitions and all its potential benefits to rely on Tanzania instead!  That is like transferring one’s inheritance to a neighbour’s children.  Uganda is being asked to retain its archaic 19th century railway line so that Tanzania’s SGR can remain profitable! According to the Investor Briefing referred to earlier, Tanzania can only generate 3.1 million tons of freight for a line designed to carry 1aA7 million tons a year.

 If Uganda falls for the trick, it will have to abandon its 1617 Km network which is projected to save the country US$2 billion a year in freight costs and also abandon the Uganda- South Sudan Line thus hurting its business interests in South Sudan. The entire 1617Km of the Uganda section of the SGR will cost an estimated $12.8 billion, says Uganda’s Daily Monitor while the Kenyan side will cost an estimated $11.4 billion, it says.

 A Railway line opens up opportunities in a country; creating new business opportunities for people neighbouring the line, easing the cost of transport and improving on the transit time. In effect, a railway line has direct links with the local economy.

Consequently, Uganda will be transferring her potential benefits to Tanzania if she abandons her SGR as she will have to ship her imports and exports through Tanzanian Ports.  The nearest port would be Mwanza, eight hours journey away across Lake Victoria.
Marine transport across Lake Victoria collapsed more than a decade ago, says the Monitor in another report. It will thus need massive investment in infrastructure, Marine Vessels and other equipment to meet demands of a modern high speed railway. Short of this, Marine transport across Lake Victoria will become a bottleneck to Uganda’s international trade.

 The journey across the Lake could take more than 8 hours of travel assuming seamless transfer of the freight. 
This compares negatively to the two hours by high speed train from Malaba to Kampala.  This section is 273 Kilometres long and, according to reports, will cost $2.3 billion. This works out to an average cost of US$8.5 billion which includes the cost of locomotives and rolling stock at US$180 million. One wonders how many locos, freight wagons and passenger coaches this money can buy.

 The East African report quotes Uganda Officials as saying that the Malaba- Kampala section will be 339KM of rail and that its costs  includes the cost of building a polytechnic in Tororo, eastern Uganda for $30 million, staff facilities for $25 million and spend $20 million to improve the Kampala railway station.

Monday, 3 April 2017

Be wary of this college

Students and Parents seeking quality British Education in Kenya had better do a due diligence on the colleges claiming to offer such “education at your door step.” One such college is Edulink International College based on Ngong road Nairobi.

The parent company of college, has a history of disappointing its students and parents elsewhere. Edulink Consultants, the parent company is based in Dubai, in the United Arab Emirates.  
It entered Africa via Victoria University in Kampala Uganda in 2011. The university, though a  provisionally licensed institution, was affiliated to the privately owned University of Buckingham in the UK.

 It had admitted some 180 students by late 2012 but it closed its doors in January 2013, citing a disagreement on Gay rights with the Uganda government. Uganda has a hardline stance on gay rights and had by then proposed legislation outlawing Homosexual practices. 

The University of Buckingham withdrew its support to Victoria University citing restrictions to freedom of Speech.  It was not clear how teaching Accounts and other business related disciplines, that the University of Buckingham was to teach, and examine, were affected by any legislation on sexual orientation.

The withdrawal of BU caused the closure of Victoria University which was later sold to Ugandan tycoon, Sudhir Ruparelia. It now operates under the management of Ruparelia group of Companies.

The 180 students in the University’s register at that time were told they would be admitted at the University of Middlesex in Dubai. Few were taken and the rest abandoned. 

Some, it was said could not raise the air ticket to Dubai while others never got the Visa for Dubai.  For all these students, the dream of a cheap and high quality education evaporated. They never graduated. The numbers of the affected students are not clear.  

Even before the closure was announced, the then, Vice chancellor, Martin O'Hara had already stepped down as the head of Victoria University in Kampala in November 2011, just a few months after the University opened its doors. Other senior academicians left in a quick succession. Lesley Mearns, Victoria's dean of business, resigned in January, and the vice-chancellor's wife, Nora O'Hara, who led a foundation programme at the university, left in December.

Edulink CEO in Nairobi is Simo Dubajic, a Serbian who came to Uganda as an employee of Ultimate Security. He appears to be a man fond of controversies. He differed with his employer over unknown reason and soon was in Court suing the company over unclear differences.

 Then, he set up Victoria University with Edulink International whose CEO is Misho Ravic, also a Serbian based in Dubai.  It is worth noting that Edulink international has been sold to a Dubai based Capital fund. It is not clear what effect, if any, this would have on other edulink branches in Kenya, Sri Lanka and Seychelles.

Simo bought a foot ball club in Uganda in August 2011. The club was renamed Sports Club Victoria University, with Simo as the Chairman. It quickly rose to the Uganda Big League, winning the play-off final 4-0 against Aurum Roses to gain promotion to the Uganda Premier League. It was promoted to Uganda super league in 2012. SCVU  finished fifth in the 2012-13 season and won its first major trophy; the Uganda Cup in 2013.

 In 2014 another controversy erupted between Simo Dubajic the Chairman of SCUV club and the Football federation of Uganda over a uniforms contract. The club was knocked out of the 2014 season by KCC and was later sold to a Uganda MP[PN5] , Ibrahim Nsereko.

Simo then came  to Kenya to set up British Education College, the predecessor of Edulink International College Ltd. The college was licensed by the Technical and Vocational Education and Training Authority (TVETA) to offer technical course in Multimedia and IT. Insiders say the course were not popular and the college may not have admitted more than 40 students per year.

In fact, say knowledgeable sources, ghost students were offered qualifying certificates. Later it was approved as an affiliate of the University of Northampton to offer Degree in Business awarded by the British University.

This is where parents have to wary. Sources indicate that, apart from the College Director, Gitonga M’bijjiwe, there are no qualified faculty members. ”The faculty comprises visiting lecturers who have got international exposure, industry professionals and accomplished academics from Kenya. This cosmopolitan mix and knowledge sharing gives students a feel of international learning,” said a self- advertising release recently.

The head of Business Studies and Foundation course, Rachel Butterfield boasts only of a Bachelor’s degree and although she claims to have a Master’s degree in her CV, No such certificate was seen in her file when this writer visited the college.

 Insiders say that the college is quite adept and employing and dismissing qualified personnel.  In the past year, the college has dismissed 18 staff including the former Campus Director and Academic Registra  without regard to employment contracts.  

Mr Dubajic admitted he fired the employees citing various reasons including incompetence and theft of University funds.

The sources say that three top academicians in Victoria were similarly humiliated and dismissed. Professor Martin O’Hara, the VC at Victoria University is said to have been dismissed without warning. He was simply dismissed and handed a return ticket to Britain, say sources. Staff have been fired in a similar fashion in Kenya.

 Documents seen by this writer show that senior staff at the college were dismissed without reasonable cause. Some were accused of stealing money from the college and forced to sign resignation or were dismissed. 

It is interesting to note that the college, despite the alleged confession by staff did not take legal action. Many of the dismissed staff accuse the CEO of being insolent and racist. A claim the CEO vehemently denies.

The documents show that the dismissed staff were paid one month in Lieu of Notice and their accumulated leave days regardless of whether the employees were on a fixed term contract. Foreigners were offered the equivalent of their return air fare home.

Sunday, 5 March 2017

Kenya inching close to exporting Crude oil

 Kenya is inching closer to becoming an oil exporting nation in the next three months. So far some 70,000 barrels have been pumped and stored in tanks at the Lokichar Basin where the well are. 

 The country is planning to export 2000 barrels a day in a pilot project that will enable concrete understanding of the wells.

 It is also a learning ground for the technical aspects of the oil evacuation since Kenya’s crude is waxy and can solidify en route. This is a major lesson that must be learnt before the design and construction of the Pipeline for it has to be understood the exact temperature at which the oil has to be transported.

Apart from understanding the temperatures, Kenyan officianado must also understand the oil business before signed the dotted lines. Kenya plans to produce some 2,000 barrels of crude a day for the pilot scheme. As at the end of February some 70,000 barrels were already in stock which means that by the end of June, an estimated 310,000 barrels will be in stock.

 Tullow, oil the majority stake holder in the operation last October advertised for a contract to lease 100 ISO T11 standard insulated containers with a minimum fluid capacity of 25,000 litres to haul the fuel from the Lokichar fields to Eldoret by road. From there it will be hauled by rail to Mombasa where it will be stored on Kenya Pipeline facilities ready for export.

A barrel of crude carries 159 litres. This means that each truck, called trailtanks, will carry 157 barrels meaning that 13 trucks will be needed to haul 2000 barrels. To haul it to Mombasa Kenya Railways Corp will require 13 flat-bed wagons per trip. The 310,000 barrels expected in stock at the end of June will be 20 days of trucking trips if all 100 trucks are deployed.

 The government upgraded the road to Eldoret from Lokichar at a cost of US$31.6 million.
The cost of transporting crude oil by road and rail over the 1,086 kilometre distance is estimated at $30-34 per barrel. 

This has critics wondering whether the venture is commercially viable at the current world market price of US$56 per barrel. However, they fail to grasp the real intention of Pilot oil export scheme. The purpose is to learn the ropes of the oil business and the technical and logistical requirements of hauling Crude oil to the Lamu port. Profit is a secondary motive here, learning not profit is the primary motive although the price must meet all costs including the operators’ operating costs.

 At $56 per barrel, the principal operator, Tullow Oil Plc and the Kenya government say it is viable.  The government may not get a coin at this stage of learning, but its own corporations, namely Kenya Railways and Kenya pipeline will have a share in the pie as logistical support providers.

Tullow’s count of the Turkana Oil reserves stand at 750 million barrels. However, its partner in the project, Africa Oil estimates that the fields could contain as much as 1.63 billion barrels. This is supported by the fact that new finds are being announced regularly.

 In January Tullow announced another find at Erut-1. It is not clear how much in terms of barrels was founds but they talked of a column estimated at 100-125 metres. Further explorations are still going on.

Kenya expects to start full oil production in 2020 when they expect to be producing 100,000 barrels per day. Consequently, she has begun the process of building its 850 Kilometre pipeline from the Lokichar fields to Lamu port. 

The construction is expected to start next year and end in 2021. It will be owned by the Joint Venture Partners, Tullow Oil, Africa oil and MAERSK and the Kenya government. The  865 kilometre pipeline, it is estimated will cost US$2.1 billion.

Tuesday, 28 February 2017

Hoima –Tanga oil Pipeline: was Tanzania short changed?

A Tullow Rig in Paipai- Kenya

DESPITE political talk to the contrary, it seems, Tanzania could end up with the short end of the stick in this project.  There is no clear, definable and quantifiable benefit for Tanzania, political rhetoric notwithstanding. The Tanzanian President was recently quoted as bragging that Tanzania will have three fuel pipelines including the Mtwara- Dar-es-salaam LNG pipeline, the Tanzania- Zambia white oils Pipeline and  now the Hoima- Tanga pipeline. 
 The cost-benefit analysis of the project does not support President Magufuli’s optimism.  However, Magufuli is ardent at jumping before looking. While the need and justification for the two pipelines is not hard to gauge, it is difficult to understand Tanzania’s stake in the third pipeline.

She has no oil so far and the possibility of finding oil looks dim so far. What is the Oil pipeline for? Will she invest or risk tax payers’ money in that project? Can it be justified in terms of economic gains? How will it contribute to Tanzania’s economic growth and welfare? How significant is that contribution? What are the Opportunity costs? Have they been quantified?

Uganda expects to make US$43 billion over the next 25 years. That is a cool US$1.72 billion a year which could be invested elsewhere in the country.  In fact, reports have it, Uganda is planning to mortgage the oil revenues to China for an SGR. 

Total SA has gained an extra 567 million barrels in Hoima fields. Assuming a fixed US$60 per barrel over the next 25 years, that is an additional US$34.02 billion. If you add the US$34.02 billion that was her share before she bought out Tullow oil, then Total SPA will generate some US$68 billion over the next 25 years other things being the same. And for this Total oil will sink any amount below US$10 billion.
Can Tanzania quantify her benefits in a similar fashion? Having waived VAT, what else is left for her?  Just being a landlord? How much rent will she get since she cannot charge for transport of crude per barrel. If Uganda, which owns the oil will earn only US$1.72 billion a year, how much will Tanzania earn as a Landlord? How significant is that to the economy?

In its previous life, the Hoima- Lamu pipeline was to be run by a SPV, Special Purpose Vehicle, which was to charge for transporting crude per barrel. That would have meant that the two countries were to invest in the pipeline which was expected to cost a pricey US$5 billion. This leads to the next question: was Total spa, “allowed” to build the pipeline or was it “contracted” to build it? Given that Tullow oil has surrendered the huge chunk of its price, "$700 million in deferred consideration which will be used by Tullow to fund the company's share of the costs of the upstream development project and the associated export pipeline project," it seems that the pipeline is purely owned by the private sector.

The structure of ownership of Hoima Oil Project changed in January 2017 when Tulllow oil Plc sold its 21.57 stake in the fields to Total SPA for $900 million. Now Total is the majority shareholder with a 54.87 Per cent stake. China National Offshore Oil Corp CNOC owns 33.3 per cent stake while Tullow, the minority stake holder holds 11.7 per cent.  If this will be the structure in the upstream operations including the pipeline, then Total will dictate terms. It cannot be “contracted” to build that which she owns.

 Reports indicate that the pipeline’s construction will be financed through equity and debt.  This means that the largest shareholder in the pipeline deal is still Total spa with 54.87 say in the matter of contracting the debt because they are expected to bear the greater burden. This is the expected structure in the downstream operations: Total 54.87; CNOOC 33.3; Tullow 10; Uganda 2 per cent; Tanzania? 

In the absence of any visible economic reasons, the view is gaining currency that the shift was a scheme to push Tullow out of Uganda by the French oil Major, Total. This is clear from Tullow’s stand on the shift of the export pipeline from Kenya to Tanzania. In March 2016, Tullow told Bloomberg that the shift to Tanzania “will have enormous opportunity cost.”  To them it was either “one joint pipeline through Kenya, or two separate lines,” Tim O’Hanlon, the London-based company’s vice president for African business told Bloomberg.

The hardline stand was not surprising for Kenya is the bedrock of Tullow oil’s business in east Africa. Her stock of recoverable crude is growing by the day. Some reports indicate that she could end up with 1.6 billion barrels in Kenya, making Kenya a more attractive proposition than Uganda where her share was slightly more than 500 million barrels. Her departure was therefore imminent.
 It is not clear whether Total SA, which was farmed into the Hoima-Oilfields by Tullow oil turned into a corporate raider. But there are fears it did, analysts say.

 After buying a third of the stake in Hoima oilfields, she went on to engineer a feasibility study of questionable competence which bad mouthed the Kenyan route causing Uganda to shift to the Tanzanian route.  That study apparently left the other partners out.  A part from irritating Kenya, Total Spa also gained by buying Tullow oil out, she increased here share of crude oil in Uganda to more than a billion barrels.

The buyout also saved her face for engineering the shift of the pipeline from Kenya to Tanzania which was becoming awkward as she had not found any oil in Tanzania where she has exploratory Licenses. Without oil in Tanzania, say industry analysts, raising the US$3.5 billion meant for the pipeline was tricky given that one of the partners opposed the new route.

This divergence of interests meant the time for divorce had come. That is how the deal to sale Tullows’ stake to Total was mooted and solemnized. Total will buy out Tullow stake for a whopping $900 million which is sweetened by the fact that it was staggered over time. Pay $100 million cash, another $50 million after the deal is approved and $50 million at the start of pumping.  In the meantime use $700 million to finance our stake in developing upstream infrastructure including the pipeline.

Analysts say that Tullow chose to protect its interests in Kenya where she has huge stock of recoverable crude – going to 800 million barrels than going the Tanzania route with its share of 567 million barrels. The Uganda oil stock is shared equally between, Tullow, Total SA and China National Offshore Oil Corp CNOC. The stake would fall further when the Uganda exercise its right to share in the Oil. 

That left the choices stark- she has to stand with Kenya where her interests are larger than Uganda, say analysts.  A week after the announcement of the sale of nearly 22 per cent stake in Uganda, Tullow hit the headlines with a find of another 50 Metre thick layer of recoverable oil at Erut-1 in Kenya raising her stock and prospects of a further increases.

  The apparent win-win situation is corporate myopia which left a bitter taste in some mouths. The diplomatic relations between Kenya and Tanzania were seriously hurt and could take a long time to heal.

 Further, by bad mouthing Kenya, Total SA has permanently locked itself out of the Kenyan Exploration scene. Analysts say, it will take a miracle, for Total to be allowed to explore for oil and gas in Kenya or even buy a stake in exploration companies in Kenya.

Kenya decided to go it alone and build a pipeline from Lokichar basin to Lamu port which will cost US$2.1 billion. The pipeline  will be financed by the joint Venture companies- Tullow, Maersk, and Africa oil and the Kenya government in equal share that 25% a piece.

 The firm is already preparing to pump about 2000bpd on experimental basis from July this year. Also to start about that time is the preliminary designs for the oil pipeline.

Monday, 20 February 2017

President Magufuli is Tanzania's Major risk factor

 It is rare for an elected government to become a stability risk for any country. However, in Tanzania, east Africa, the government, particularly the president is slowly assuming that dubious distinction

This is as a consequences of his disregard for due process and the rule of law in his governance style. It is becoming increasingly difficult to gauge the purpose of some of his actions for they appear to work against the country’s interests. Some actions even contradict the country’s economic and political goals.

For instance, transferring government funds from the private Commercial banks is reasonable if the government wants to spend the money and does not want to be tied down by investment contracts. However, it becomes a hurdle to economic activity if it is just parked at the Central Bank and the government begins to show a budget surplus because it did not spend the money. 

Economic growth is driven by flow of credit and money circulation in an economy.  Credit to the productive sectors is generated by savings in commercial banks that trade in money.  The central Bank does not trade in money and when the government is not spending the money in its account, the money is withdrawn from the economy. This leads to low circulation of money and therefore low demand even for local products. Low demand means low products and contraction of the economy.

The most telling contradiction of this move is it contradicts the government own stated goal of spreading wealth in Tanzania. Wealth is spread through consumption of goods and services. Without these, there cannot be any transfer of wealth.  

The financial sector in Tanzania is weak. This is why they need support from the government in terms of deposits because, some government institutions, such as the retirement benefits schemes have a lot of cash lying idle in bank vaults. 

This is the money that when deposited with commercial banks, generate interest for the depositors and the banks  as the banks also sell -on profit-to those looking for credit.  One of the consequences of the withdrawal of money  is that commercial banks in Tanzania are posting losses due to credit squeeze and bad debts. 

The banks' deposits have declined after the loss of government deposits. The largest private bank, CRDB, for example, posted a loss of Tsh1.9 billion ($1 million) in the third quarter of this year. Twiga Bancorp also registered a loss of Tsh18 billion ($8.26 million) over the past year. These are indigenous banks whose fall could have serious ramifications of the economy.

The Central Bank of Tanzania is itself convinced that danger is looming.  It recently said in a statement, that weakness in the financial sector “poses a systematic risk to the stability of the financial system; the continuation of Twiga operations in its current capital position is detrimental to the interest of its depositors."

To avert risks associated with tight monetary policy, the government must spent taxes on goods and services. But the government is proudly announcing savings made due to certain restrictions. 

Restricting wasteful spending  such as foreign travel is good but the money so saved musty be spent on other sectors that buoy economic activity.

 Ironically, the government is not spending.  In the third quarter last year, which was the first quarter of the current fiscal year, the government ran a budget surplus of over Tshs 300 billion (US$ 150 million). It also saved another $500 million from restricting foreign travel. That is a whole US$700 million lying idle in consolidated account.

Governments collect taxes in order to spend –not to save.  In fact government are famous for running budget deficits- that is they spend more than they collect.  This is because there is more demand for government services than the available resources. Saving nearly 10 per cent of a country’s annual budget suggest that the government does not need the taxes. It should therefore ease the tax burden so that, citizens can have more money to spend and keep the economy going.

Another contradiction is the rejection of electricity tariff increase yet the government seeks to borrow US$200 million to pay off Tanesco’s debt. We have reliably learnt that the government had earlier tried to borrow from the World Bank for the same purpose but the request was rejected. Analysts do not see the current application succeeding. The government’s argument in rejecting the increase is; such an increase would hamber the President Industrialisation drive which is pegged on availability of electricity.
 In November, Dangotte Cement Tanzania closed for 10 days over dispute over availability of energy to fire the plant.  Book publishers are crying foul over the ban to publish school text books while some of the large corporations in the country are reportedly slowing down on investment in Tanzania. Some are even said to be considering decamping from the country altogether.

The far-reaching cost-cutting measures announced by President John Magufuli's administration since coming into office in November last year have become widely blamed for causing a liquidity squeeze in the economy that appears to be getting tighter by the day.

This has in turn had a ripple effect on the private sector - the engine of the country’s economic growth - leading to a decline in revenues and profits for various small, medium and large-scale businesses across several industries and sectors, according to analysts. At least six companies are rethinking their business and investment plans others, some of the biggest foreign firms operating in Tanzania, or their local arms, in sectors including mining, telecoms and shipping.

The president assumed office in October 2015 and embarked on a sacking spree of public servants deemed corrupt or in efficient. This scares civil servants and is likely to reduce Tanzania into a country of sycophants who do what the President says even if it is wrong.

The first to suffer the President’s wrath was the Tanzania Ports Authority whose managers were removed under the pretext of fighting corruption. Within two months the port had lost 42 per cent of its business to other ports in the Indian Ocean sea board. While there many factors driving the scampering from the Port, the major cause was delay caused by fear to work by employees at the port.
 Others who have been sacked in a humiliating fashion include the director of the National Institute for Medical Research (NIMR) Director General Dr Mwele Malecela whose only crime was to report that the dreaded Zika virus had been detected in Morogoro and Geita regions; the CEO of Tanesco for raising power tariffs, among others.

  On the Political scene, the President has effectively silenced the opposition by banning political activity. The malicious nature of this abuse of power is the humiliating arrest of Opposition MPs rights at the gate of Parliament on flimsy criminal cases. One of them has been languishing in Jail for more than four months over a charge of incitement. This charge is boilable in Tanzanian law and a person no less a former Attorney General of Tanzania, who is currently an MP of the ruling party was public quoted for wisdom in arrest MPs.

From the foregoing, it is clear Tanzania is headed in the wrong direction. The President, who is the single major threat to the country’s stability needs to slow down. He must stand back and take stock before the country implodes.