A crude oil pipeline that will connect the entire East Africa region will cross through northern rather than southern Kenya, based on the results of recently completed feasibility study and an agreement between Uganda and Kenya. The designated “northern route”of the proposed Uganda–Kenya Crude Oil Pipeline (UKCOP)will begin in Hoima on the shores of Lake Albert in western Uganda and will cross Kenya through Kainukand Lokichar in Turkana County, proceeding to Isiolo and Garissa and terminating at the port of Lamu on the Indian Ocean.

A crude oil pipeline that will connect the entire East Africa region will cross through northern rather than southern Kenya, based on the results of recently completed feasibility study and an agreement between Uganda and Kenya. The designated “northern route”of the proposed Uganda–Kenya Crude Oil Pipeline (UKCOP)will begin in Hoima on the shores of Lake Albert in western Uganda and will cross Kenya through Kainukand Lokichar in Turkana County, proceeding to Isiolo and Garissa and terminating at the port of Lamu on the Indian Ocean. 

The northern routewas designated as the most favourable option by Toyota Tsusho Corporation, the contractor that carried out the feasibility study. The recommendationto construct the pipeline through northern Kenya is not without controversy, as powerful multinational oil companies publicly supported a “southern route” that would have run closer to the existing pipeline that terminates in Mombasa. The proposed northern route was recently agreed upon by the governments of Kenya and Uganda, subject to financing, transit fees, and security guarantees by Kenya.

Feasibility Study Pipeline Route

The crude oil pipeline, stretching 530 km across Uganda and another 850 km across Kenya, has been planned for a number of years and was brought about by the discovery of oil reserves in both countries. Due to the waxy nature of the oil in both countries – it remains solid below 40 °C (104 °F) – the proposed pipeline will be heated and will utilize pump stations along the way. When the pipeline is completed, it will be the longest heated crude oil pipeline the world. The discovery of oil in commercial quantities in Kenya in 2012 spurred plans for the pipeline.

In June 2014, the members of the Tripartite Infrastructure Initiative composed ofUganda, Kenya and Rwanda (renamed the Northern Corridor Integration Projects (NCIP) after South Sudan became a full member) invited bids for a consultant to oversee a feasibility study and initial design for the construction of the pipeline. In November 2014, they awarded Toyota Tsusho the contract to design the pipeline and designate the most favourable path through Kenya (northern or southern), based on the findings of their feasibility study.

Kenya’s government said that the pipeline designer would also be required to supervise the construction of a fibre optic cable from Uganda’s oil fields to Lamu as well as design tank terminals in Hoima, Lokichar and Lamu. The project will also include the construction of a 9 km pipeline from the Lamu tank terminal to a loading buoy located offshore. Now that the feasibility study is complete, the Kenyan government has announced that bids for the construction of the pipeline will be invited in the third and fourth quarters of 2015.

The Northern Route and LAPSSET

Toyota Tsushoreleased its feasibility studyin mid-2015. It called for pipeline construction to follow the northern route. This route will bypass Nairobi and terminate in Lamu rather than the port of Mombasa. Oil companies had reportedly pinned their hopes on the southern route, which passes through Nairobi, and therefore would avoid areas of heightened insecurity further to the north. For example, Britain’s Tullow Oil, with major stakes in both Uganda and Kenya, has previously said it expects to decide on whether to proceed with further investment in the region based on the decision to route the oil through northern Kenya.

On the other hand, Kenya’s government haveopenly favoured the northern route as it fits into the integrated Lamu Port-Southern Sudan-Ethiopia Transport (LAPSSET) Corridor, a transport and infrastructure project in Kenya that will be the country’s alternative transport corridorwhen completed.The pipeline is just one facet of the LAPSSET Corridor, which includes construction of a new port in Lamu, an airport, highway, rail line and an oil refinery at an estimated cost of over $2.7 trillion. The selection of the northern route could have major geopolitical significance as it will eventually enable South Sudan to pump its crude oil through the pipeline to Lamu Port. In this way South Sudan will no longer be dependent on Sudan to transport its oil, thus denying its northern rival major transit revenues and ending Sudan’s effective control of South Sudan’s oil exports.

Pipeline Costs and Capacity

Toyota Tsusho estimates that the project will cost approximately $4.7 billion, at present. Annual operating expenditures are estimated be about $131.5 million. The Kenyan government estimates that the pipeline will be completed by 2018 or 2019, should funding be available.

Technical details on capacity indicate the design throughput is to be 300,000 barrels of crude oil per day, made up of 200,000 barrels from Uganda and 100,000 from Kenya. Plans call for the crude oil from Uganda and Kenya to be blended and transported through the pipeline system. That means the pipeline will be smaller between Uganda’s oil-rich Kaiso-Tonya area – west of the town of Hoima – to Lokichar in Kenya. After that, the pipeline will be larger from Lokichar to Lamu Port, given the addition of Kenya’s oil.

The current design as envisaged by Toyota Tsusho, allows for an additional 130,000 barrels, per day from South Sudan under a high flow scenario. Once the pipeline is extended to South Sudan, there will be a total of seven pumping stations along the pipeline, with three in Uganda and two in Kenya. This includes the injection pump at Lokichar.

Development Potential and Problems

Projects associated with the LAPSSET Corridor, to include the UKCOP, will potentially open large swathes of land to development – development that has traditionally been reserved for the more southerly, Mombasa-Nairobi-Kampala corridor. The project aims to increase access to government services, augment regional trade as well asimproveexisting economic links and foster new ones. Once completed, the LAPSSET Corridor and the UKCOP have the potential to reduce transportation costs, uphold peace and security, and foster development as well as create business opportunities for communities adjacent to the corridor.

Yet the politics of successfully bringing the LAPSSET Corridor to fruition remain problematic. It is unclear exactly how much communities surrounding the transport corridor and pipeline will benefit. In addition, preciselywhere and how the roads, pipelines and other infrastructure-related projects will be built and whose land they will cross still needs to be hammered out. The discovery of oil in the Turkana region and its effects on local populations remain something of a wild card.  Indeed, a recent upsurge in violence between tribes in this region may be a direct result of the oil discovery and attempts by individuals and groups to establish control of land surrounding potential oil fields and therefore a slice of the revenue associated therewith.

Security Concerns

Relatedly, there are concerns about the general level of insecurity along the proposed northern corridor pipeline route. This is one of the reasons given for Tullow Oil’s public stance supporting a southern route through Nairobi for the UKCOP. French multinational oil and gas company Total and its various subsidiaries, including Total E&P Uganda, have gone so far as to suggest an alternative route to the proposed “northern route” between Uganda and Lamu. This route would stretch from from Hoima in Uganda via central Tanzania to the port of Tanga on the Indian Ocean, bypassing Kenya completely.  At this juncture, both Kenya and Uganda have chosen to ignore the proposal by Totalto scout the Tanga route as an alternative cheaper route for the proposed UKCOP.

Kenya’s government is correct in the assessment that development of the northern corridor through the building of the pipeline, roads and other infrastructure will likelyproduce economic development, improve lives and grant better access to Kenyan security forces to the region. Yetthe challenges legion, complex and trans-boundary. Perhaps the biggest security threat comes from the Somali terrorist group, al-Shabaab. Their brand of terrorism has little to do with roads and infrastructure, as they have attacked targets ranging from the Westgate Mall in Nairobi to Garissa University to small, isolated villages around Lamu. As such, al-Shabaab terrorists have shown the ability to attack whether there is infrastructure or not. Projects associated with the LAPSSET Corridor would likely serve as tempting, symbolic and devastatingly pricey targets of attack.

The Politics of Building the Pipeline

In August 2015, Uganda agreed to construct the proposed pipeline along the northern route designated by Toyota Tsusho and favoured by Kenya’s government. In order to spur construction, Kenya and Uganda are in the process of establishing an oil company to be owned by all stakeholders involved in the crude oil pipeline deal. According to reports, the framework of the proposed oil company, location, shareholding, recruitment processes for management and shareholding will be overseen by the Kenya-Uganda committee on the crude oil pipeline. It will be a joint venture, owned by Uganda, Kenya and oil investors in both countries.

Uganda’s government has also set three tough conditions. First, Kenya must guarantee it will offer Uganda transit fees or tariffs that are cheaper via the northern route rather than alternative routes. Second, Uganda wants Kenya to provide security along the pipeline. Third, Kenya and Uganda must agree on financing arrangements. It is unclear how Uganda or Kenya will determine “cheaper fees” for the northern route in comparison with that of alternative routes. Furthermore, Kenya cannot fully know transit costs until the Front End Engineering Design (FEED) is completed. The FEED in this case is the detailed design of the construction of the proposed pipeline.

The costs associated with Uganda’s pre-conditions are in addition to the fact that each of the countries associated with the project will be responsible to develop the route under their jurisdiction. This means that Kenya – with the longest section – will contribute the lion’s share of the $4.7 billion budget. As such, Uganda’s demands threaten to greatly increase Kenya’s cost burden for the pipeline.

All this is occurring as Uganda and Kenya await a decision by big oil companies on financing for the UKCOP. Tullow Oil, Total, China National Offshore Oil Corporation (CNOOC Group Ltd.), Africa Oil and Ugandan oil companies are expected to mull over the proposed route, possibly ask for concession and make a final decision by October 2017. Added to this, Ethiopia has announced its partnership with Djibouti to construct a 550-kilometre fuel pipeline that would provide an alternative to any constructed through northern Kenya. It will also affect Ethiopia’s desire to fully participate in sharing any construction costs associated with the UKCOP.

In order to offset some of the costs associated with building the pipeline along the northern route, Kenya’s president may also choose to invite the private sector to assist in carryingsome of the financing and operating costs of the pipeline, thus reducing the tax burden on Kenyans. Lastly, Kenya’s president may choose to work with the governors of counties though which the proposed pipeline will pass. They could potentially work together to address concerns and convince the communities living along the proposed pipeline corridor of the potential benefits associated with the project. The governors could also work with the president to implement his2014 suggestion that they convert their land ownership into shares of the crude oil pipeline. This would give them the potential to earn dividends on income from the pipeline rather than a one-time payout for land.

Pipeline Geopolitics

In the end, the construction of UKCOP along the proposed northern route and other projects associated with LAPSSET will redefineeconomicand geopolitical relationships in East Africa and the Horn of Africa. Should it be built, the pipeline and related infrastructure and development project, to include ports and international airports, will undoubtedly bind Kenya, South Sudan, Uganda and likely Rwanda as well as Ethiopia closer together. Tanzania will be left out unless a southern spur is built or Total Oil’s proposal for a Uganda – Tanga pipeline is taken seriously. This looks like a non-starter at this point.
Whether the changes resulting from the building of the UKCOP and the revenue generated will all be positive remains to be seen. What is certain is that the discovery of crude oil and the construction of infrastructure associated with the UKCOP will result in winners and losers. The decision to construct the UKCOP across northern Kenya will have major spinoff effects and unintended consequences that will ricochet across the region for decades to come.

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