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Mixed news on Kenya pipeline projects

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KENYA’S flagship midstream project suffered a fresh setback  early May – the contractor demanded a further compensation payment from Kenya Pipeline Co. (KPC) for purportedly unavoidable delays. The new refined products pipeline is set to connect Mombasa and Nairobi.

However, more positive news for the government firm came in the form of the completion of a scheme designed to enhance midstream infrastructure in Western Kenya to enable increased regional fuel exports – a core contributor to the country’s GDP.

Meanwhile, plans to export a portion of Kenya’s first crude production cleared a critical legal hurdle – adding urgency to KPC’s contribution to the scheme.

The so-called Line-5 project entails the installation of a 450-km, 20-inch (508-mm) pipeline carrying up to 1 million litres per hour (lph) of oil products along the crucial route from the main port of Mombasa inland to the capital. It will replace the existing 14-inch (356-mm) line – which is dilapidated and running well below its 880,000 lph capacity after more than four decades in service.

The original builder, Lebanon’s Zakhem International, won the $483 million main contract in September 2014 – despite protests by several defeated bidders on the grounds of alleged irregularities in the tendering process – and was due to have completed the work in early 2016.

However, the company has repeatedly put back the commissioning date for reasons purportedly beyond its control – including amendments to the design, poor communication by the consultant, a dispute over regulatory fees and the time taken to overcome the legal challenges to the award.

Zakhem has made several demands for additional payments for the prolonged periods of work – and in early May was reported by the local press to be seeking a fifth disbursement – of 1.5 billion shillings ($15.2 million) – to cover a final extension.

The claim was said to have divided the KPC board, with some arguing for acquiescence to the request in order to ensure the long-delayed commissioning proceeded in June and others favouring referring the issue to more senior government authorities to pre-empt any suspicions of impropriety.

KPC reportedly agreed in early April to make a payment of 4.4 billion shillings (US$439 million) for the first four periods of delay. The state-owned firm has a notoriously poor record for timely project delivery, while allegations of financial mismanagement across government corporates are endemic.

However, KPC was able to record a success in April in its drive to improve the supply of refined products to Western Kenya and the wider East African region, as local contractor Southern Engineering handed over $17 million new oil jetty at Kisumu, on the banks of Lake Victoria – aimed at boosting exports to other border states.

The jetty is designed to load vessels with up to 4.5 tonnes of products, including gasoline, diesel and jet fuel. The scheme builds on the completion in 2016 of a new pipeline – so-called Line 6 – linking the lakeside port to Sinendet on the main Mombasa-Nairobi-Eldoret backbone of the national fuel pipeline system and roughly tripling product flow to the Kisumu depot to 350,000 lph.

A new truck-loading facility at the Eldoret depot also entered service in July – since when send-outs from the terminal have reportedly risen by some 62.5 percent to 6.5 million litres per day.

All three projects are in turn intended to capitalise on the increased supply inland of fuel imported through Mombasa promised by the completion of the core Line 5 scheme.

‘The jetty is expected to boost throughput in Kisumu by 1 billion litres a year in phase 1 and up to 3 billion litres a year by 2028,’ KPC managing director Joe Sang wrote in an article in November. ‘With such volumes, the project has the potential to turn Kisumu into a focal point of oil and gas commerce in the region, making it into one of the busiest mainland ports in Africa.’

Around 13 percent of Kenyan exports are accounted for by regional refined project sales – chiefly to Uganda.

Perhaps fortunately, given KPC’s delivery record on major projects, the state firm is not involved in the largest midstream development under way. This comprises an estimated $2.1bn, 892-km pipeline due for completion early next decade to deliver the first commercial volumes of crude from the Turkana oilfields to the northern port of Lamu for export.

The Energy & Petroleum Ministry awarded the UK’s Wood Group the front-end engineering and design (FEED) contract in April – not long after new upstream stakeholder Total of France had confirmed its commitment to the route.

However, KPC is playing a minor role in the delayed ‘early oil pilot scheme’ planned by Nairobi and lead upstream operator Tullow of the UK to truck the initial 2,000 bpd of produced crude to Mombasa for export.

In March, the state firm tendered a contract to modify a 4.5-km pipeline from the storage tanks at the idled Changamwe refinery – to where the oil will initially be trucked – to the Kipevu oil jetty at the port of Mombasa, in order to allow the facility to handle Kenya’s waxy crude.

In early May, the wider project surmounted a key hurdle in the form of a revenue-sharing agreement between the central and local authorities, adding urgency to the KPC scheme.

 

 

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