BMI View : The ambitious LAPSSET transport corridor could be a step closer to realisation with negotiations currently underway over the rehabilitation of a 960km road linking Kenya with South Sudan. If built, the road would significantly help to open up transport links in the East Africa region, and provide South Sudan with a direct export route v ia Kenya for exports, including oil, thus further reducing reliance on Sudan.
The road linking the north west Kenyan town of Eldoret with South Sudan ese capital Juba forms an integral part of the Lamu Port-Southern Sudan-Ethiopia Transpor t (LAPSSET) Corridor. The entire US$23bn corridor project is hoped to better integrate the three countries via road, rail and pipeline links, connecting to a new port at Lamu in northern Kenya. The corridor is one of the most important infrastructure proposals for the East Africa region, as it would allow the strain to be taken off of Kenya's overburdened port of Mombasa and provide an export route for South Sudan, allowing it to bypass and thus reduce reliance on Sudan, especially for oil exports , but also allowing the development of non-oil industries . The project also includes construction of a refinery at Lamu, in order to allow for the export of more lucrative refined products.
|Source: MENA-FN, Daily Nation|
|Port||10-berth container terminal, 3 bulk cargo terminals, 1 oil terminal||Lamu|
|Road||1,400km||Lamu-Isiolo-South Sudan border|
|Oil pipeline||1,500km||South Sudan border-Lamu-Isiolo|
|Oil pipeline||1,400km||Nairobi-Isiolo-Moyale-Addis Ababa|
|Oil pipeline||na||Lamu to existing Mombasa-Nairobi pipeline|
The Eldoret-Juba highway stretch of the corridor could be moving forward with negotiations underway between South Sudan and Kenya to upgrade the 960km route to international standards. Feasibility studies are currently underway on the project, which is estimated to cost around US$1bn. Securing funding will be the key obstacle. Both countries have approached development institutions over providing loans for the project - likely the best option for funding. Likely sponsors include the African Development Bank, the European Investment Bank, the World Bank and the China ExIm Bank.
The road would be a crucial artery for South Sudan's exports, allowing it to build up its non-oil industries. However, South Sudan has entertained the idea of exporting oil via roads as a stop gap measure in order to get oil moving following strained relations with Sudan which controls much of the export infrastructure. Initially the country proposed exporting 10% of oil production (equal to 35,000 barrels per day) via roads through Djibouti. The upgrade to international standards of a highway linking to Kenya would allow for a sizable increase in this figure. However, the project is anticipated to take a considerable amount of time. Construction is hoped to begin in January 2014, and be completed in 2023. By which time an oil pipeline linking South Sudan and Kenya would hopefully be completed.
Indeed, an agreement to build the oil pipeline section of the corridor was signed in March 2012 between Kenya and South Sudan. The 2,000km project is estimated to cost US$3bn with most of the bill to be covered by South Sudan, however with Juba not having the resources to finance the project private investors or alternative funding sources will be sought. One option is to tap into the oil companies active already in South Sudan for funding, given the importance of the pipeline to profitability. Construction is hoped to start in June 2013 and take two years to complete.
Progress is also being made of the US$5.3bn port section of the project - perhaps the most important aspect of the entire corridor. Groundbreaking took place in March 2012, although only a small portion of the total project cost had been secured at that point.
With a number of elements of the highly ambitious project moving forward, the potential for full realisation is improving. However, we remain concerned over the possibility of the project becoming a white elephant in the region, with only partial realisation of a portion of projects. Financing constraints would be the most likely undoing of the corridor, given the hefty price tag and the reliance on development funding. Therefore, whilst government agreements are a good sign for regional integration necessary to get this project off the ground in theory, securing financing will be the only real sign of progress.