Kenya exports Oil, Hoima-Tanga Pipeline stalls.

The trucks that evacuated Crude by 
Road to Mombasa

Kenya has just exported its first 200,000 Barrels of Crude oil from its Lokichar basin. The export will earn Kenya some US$12 million. This is a minuscule amount compared to Kenya’s GDP.

However, it is significant in that, it demonstrates the advantages of decisive action compared to indecision: Resolute action has positive results at a cheaper rate while procrastination delays action and blocks the benefits accruing from firm decision making.

The export,  billed " Pilot oil export" has thrust Kenya into the oil exporters club, seven years after the first barrel was discovered in the Lokichar Basin, in Turkana county.

Kenya’s crude is said to be among the best in the world, at par with the Brent Crude C1. Sold at $60 a barrel, it was a windfall of sorts for the country, since officials in the Ministry of Energy and the developer, Tullow Oil, say it was viable at US$56 a barrel.

On the other hand, Reuters reported, the construction of the Oil Pipeline to the Tanga Port in Tanzania, from Hoima in Uganda, has been indefinitely put on hold following a disagreement between Tullow Oil and its partners, Total oil and China’s CONCC over taxes.

Tullow, which discovered Oil in the Hoima Basin in Uganda back in 2006, was never for the idea of evacuating Uganda’s crude through Tanzania. And this, analysts say, could have contributed to the decision by Tullow to offload 21 percent of its stake in Uganda to the French oil major, Total SPA. Total, through the Tanzanian President, engineered the re-routing of the pipeline from Kenya's Lamu Port to Tanzania's Tanga Port.

An oil pipeline. The Hoima-Tanga pipeline has hit a storm

Now Uganda’s target of exporting crude oil by 2022 is in a disarray following the disagreement.
The re-routing of the oil Pipeline to Tanzania also derailed the previous MOU between Kenya and Uganda to construct a standard gauge Railway line, SGR, from Kenya’s Port of Mombasa to Kigali, Rwanda Via Uganda.

In 2013, the then “coalition of the willing” comprising of; Rwanda Kenya and Uganda agreed to upgrade the Northern Corridor Railway line to Standard Gauge standard. The Rail then was at a cost of US$13.5 billion including rolling stock and locomotives.

 Construction was to be completed last year. Read  http://eaers.blogspot.com/2013/07/coming-soon-mombasa-kigali-express.html. To date, the line is behind schedule. Only Kenya has built the Nairobi- Mombasa section and is extending it to Naivasha, 120 Km North West of Nairobi.

Trouble for the SGR began when Uganda reneged on an MOU with Kenya to build the Hoima-Lokichar –Lamu crude oil Pipeline, choosing the Tanzania Port of Tanga instead. Tanzania, after yanking the Pipeline from Kenya also began sweet-talking Uganda to also use the Central Corridor.

That effectively derailed the Mombasa Port- Kampala - Kigali line.

Kenya responded by re-designing the SGR to terminate at Kisumu instead of Malaba, on the Kenya Uganda border. The Financier, the Chinese Exim bank grew cold feet on its funding.

Kenya also opted to go it alone on the oil Pipeline from Lokichar to the Lamu Port. The first berth in the Greenfield Port is due for completion in a month’s time and the first Post- Panamax ship is expected to dock in November this year. Kenya’s ambition of exporting Crude through the Lamu port, therefore, looks achievable. The completion of the first birth will jump-start the development of other related projects in the Lapsset corridor using the Lamu Port as their entry point.

However, Uganda has indicated that it may favor the Northern Corridor line if Kenya assures her that her side of the line will terminate at Malaba as initially agreed.  

This follows a study by Uganda’s Ministry of Transport and Public works, which concluded that the Central Corridor is not a priority for Uganda. The study established that the Central Corridor SGR, which will terminate at Mwanza, Tanzania’s Port city on Lake Victoria, will be a bottleneck for Uganda’s economic ambitions.

It established that to carry a single trainload of 216 containers will require five ferries each carrying 44 containers. The ferries are not available since Marine transport on Lake Victoria collapsed more than 10 years ago. Read:http://eaers.blogspot.com/2017/06/the-central-corridor-is-no-option-for.html.

Decisiveness and risk-taking is thus a critical variable in economic growth and increased productivity. By contrast, indecision and confusion hamper wealth creation. Indecision and procrastination are wrong decisions and they are slowing the pace of wealth creation in East Africa.

 The design layout of Lamu Port's Berth 1 due
 for completion in a month.

According to the Africa Economic Outlook 2019, Kenya and Ethiopia are the leading debtors in East Africa. Ethiopia’s indebtedness stood at 62 percent of the GDP in June 2018, while Kenya’s was 57 percent of the GDP in September 2018.

The two countries are the largest economies in the fastest-growing region in Sub-Saharan Africa.
 Ethiopia’s GDP growth rate is estimated at 8.5 percent a year, while Kenya’s is just around six percent.  The driver of this growth is public investment in infrastructure.

Both countries have heavily invested in mega infrastructure projects in energy and transport with borrowed funds.
These are pricey projects which have driven the debt to GDP ratio up. But they are also fast-growing countries which is expected to drive the ratio down in the future.

The leadership in both countries has been “daring” in that they have borrowed to invest in Infrastructure despite warnings from the Bretton Woods institutions. Since infrastructure is an enabler in economic progress, the economies have responded by posting fast rates of growth. At the going pace, the two economies GDP will cross- the US$100 billion mark this year, says the IMF.

In the meantime, Uganda is likely to join Tanzania in cirrhotic growth. According to the IMF, Tanzania’s GDP will slow down to just around 4 percent in the short term, down from a decade long rate of more than 7 percent.