Toyota bosses say Lamu is cheaper route for oil pipeline

Feasibility studies have eliminated both Tanzania and Ethiopia as options of cheap transportation of crude oil.

Sunday February 14 2016

A business delegation from Japan during Kenya-Japan meeting held on August 20, 2015 at State House, Nairobi.  Toyota Tsusho Corporation bosses have said Lamu route is still the cheaper option of transporting South Sudan and Uganda oil to international markets. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP

A business delegation from Japan during Kenya-Japan meeting held on August 20, 2015 at State House, Nairobi. Toyota Tsusho Corporation bosses have said Lamu route is still the cheaper option of transporting South Sudan and Uganda oil to international markets. PHOTO | JEFF ANGOTE | NATION MEDIA GROUP 

Kenya’s Lamu Port South Sudan and Ethiopia Transport (LAPSSET) corridor crude oil pipeline is still the cheaper way of transporting South Sudan and Uganda oil to international markets.

Toyota Tsusho Corporation head of Pan Africa Regional Office and Strategic Alliance Department Kenji Suzuki and senior general manager Hideyuki Oiwa told the Sunday Nation that they have so far spent more than Sh100 million to do feasibility studies that eliminated both Tanzania and Ethiopia as options of cheap transportation of crude oil.

“We have carried 0ut four studies on the crude oil pipeline since 2011 before Kenya was certain of its oil reserves,” says Mr Oiwa, who is also in charge of Energy Infrastructure projects.

The crude oil pipeline is one of the key projects earmarked for implementation under the LAPSSET corridor and the views of the Japanese could be good news for Kenya government after threats by Uganda to pull out while Ethiopia signed a deal with Djibouti for a similar project.  

TOLL FEE

Following discovery of crude oil in the Lokichar Basin in Northern Kenya by Tullow Oil, Kenya decided to develop the crude oil pipeline from Lokichar to Lamu for early monetisation of the resource.

In August 2013, Uganda expressed interest in exporting crude oil from Hoima through the planned Lokichar-Lamu pipeline. Rwanda also expressed interest in investing in the pipeline.

According to Mr Oiwa, they first did studies on the Kenyan line before adding the Uganda line.

When they did the first study, Kenya had not discovered oil and the aim was to charge a toll fee to South Sudan for the pipeline passing through Kenya.

“Now that Kenya wants to export its oil, the issue of the toll fee was removed,” says Mr Oiwa.

Mr Oiwa notes that it will be expensive for South Sudan oil to pass through Ethiopia, arguing that Ethiopia is very hilly and elevations will be costly.

INSECURITY

He says that was the reason they settled on Kenya as a route. However, the argument with Uganda has been that Lamu is too risky because of bandits and extremists.

“We made a comparison and resolved that a pipeline through Kenya might be cheaper than passing it through Ethiopia,” says Mr Oiwa.

He argues that the main reason Uganda could be reneging on its commitment is that they prefer the Port of Mombasa to Lamu.

“Mombasa is possible but it is very congested and getting a right of passage will be expensive since land has to be bought. Can you imagine how much you will be charged if you have to buy land in Nairobi for the pipeline?” asked Mr Oiwa.

A Memorandum of Understanding between the three Presidents was signed on May 2, 2014 for the development of the crude oil pipeline along Hoima-Lokichar-Lamu.

The project’s capital cost was estimated at $4,690,628,665 while the annual operating expenditure would be about $131,490,122.

Apart from Uganda and Rwanda, the pipeline was to serve South Sudan and Ethiopia. However, Ethiopia broke away and announced a deal to construct their pipeline through Djibouti.

This left Kenya, Uganda and Rwanda. Uganda raised objections. They argued that they want to construct a refinery in Uganda and export a finished product instead of exporting crude oil as Kenya proposed.

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