Wednesday, 4 September 2013

Could rail be a viable outlet for South Sudan’s oil exports?

By Peter Feuilherade

This article was first published in MENA Rail News on 13 July 2013
Flag of South Sudan
The latest flare-up between Sudan and its landlocked neighbour South Sudan over cross-border flows of oil via pipelines raises the issue of whether building a railway line to export South Sudan’s oil via Kenya instead could turn out to be a better long-term option.

In June, Sudan threatened to block exports of crude oil from South Sudan via pipelines controlled by the government in Khartoum, following renewed claims that South Sudan was supporting rebels operating across the shared border. The allegations are denied by the government in Juba, the capital of South Sudan, which is the world’s newest nation. When South Sudan gained independence from Khartoum in 2011 after a 22-year civil war, Sudan lost 75 per cent of its oil production overnight, but retained the pipeline infrastructure, as well as the refineries and export terminal at Port Sudan on the Red Sea. This is currently the only way that South Sudan, the most oil‑dependent country in the world, can get its oil to market.

After the row was defused at the end of June, South Sudan shipped its first oil cargo through Sudan to international markets since 2011. But tensions remain between the two countries, and it is very likely that oil exports from South Sudan will be interrupted again.

In late June, the presidents of Uganda, Kenya and Rwanda agreed to build two pipelines across East Africa, one of which would run from South Sudan to Lamu port in northern Kenya. While this would give the Juba authorities a pipeline to the south, advocates of building a rail link to export South Sudan’s oil believe they have a strong case.

“Flexible, open-ended, expandable”

In 2012, two US academics and Sudanese specialists set out the case for building a railway line to connect South Sudanese oil fields to the Kenyan coast. But so far the proposal has not attracted interest either from the government in Juba or the international rail construction industry.

The railway project, if adopted, could put the new country on a path for resolving a host of pressing political and economic problems in a single blow, says Sharon Hutchinson, Professor of Anthropology at the University of Wisconsin. It could also represent an enormous business opportunity for international railway companies, she told MENA Rail News in an interview. 

Her vision is of a flexible, open-ended and expandable railway system that could begin with a route that would link South Sudan to Kenya (and Uganda) and then gradually expand, as income from oil export revenues and supplementary railway revenue streams grew, to encompass the entire country and become a force for economic growth throughout the extended region.  

She believes that a railway line could be built in stages that could gradually expand outwards from an initial cut to the coast in order to progressively link up with more and more regional urban hubs, such as Nairobi and Kampala and, later, perhaps, Dar es Salaam and Addis Ababa. “Even more importantly, it could serve as a force of political and economic growth and unification by gradually interconnecting diverse domestic administrative centres and regions,” Hutchinson added, noting that there is already a rail line extending from Khartoum to Wau in South Sudan, which could be tied in and expanded as a more effective route northwards. 

Train travelling towards Wau
Recalling how railway construction during the colonial era had stimulated rapid economic development and growth in many African countries in the past, she said that “unlike a single purpose oil pipeline, a railway line would be able to create multiple revenue streams for both the state and people of South Sudan for generations to come.  It would enable South Sudan to create an increasingly diversified import and export economy.”

But Hutchinson warned that if government officials in South Sudan do not give the railway proposal more serious consideration at this stage, they may find it very difficult to "catch up" with neighbouring states later on, once the latter have taken the economic lead. 

Eric Reeves, a Sudan researcher and analyst at Smith College, Massachusetts, also believes South Sudanese officials have not taken the railway option seriously enough. He told MENA Rail News: “The real issue is the lack of a leadership which has to date failed to assess this key transportation decision in a realistic way.  The oil pipeline can carry more oil, but will take longer to build and is one‑way - it is useless for imports.”

In reply to arguments that South Sudan critically needs maximum oil revenues now, which an existing pipeline can provide, Reeves counters: “Even if a rail line monetizes the oil reserves more slowly, that's probably a good thing.  Too much money came in too fast to escape the blight of corruption.  And when the oil runs out, the pipeline will be useless - not so a rail line.”

In a February 2013 briefing paper entitled "Railway: A Better Option than Pipeline for South Sudan”, Samuel Nyuon Akoi Nyuon, an engineering student at Cornell University, pointed out that given its current economic predicament, South Sudan cannot afford to build roads, railways and a pipeline at the same time. “It must choose what to acquire first in order to stimulate the growth of her nascent economy. Looking at the three options, railway offers the best opportunity for restarting oil exports and stimulating long‑term economic growth,” he argued.

There is already a separate plan, the LAPSSET (Lamu Port-South Sudan-Ethiopia) project, a $25 billion venture that envisages linking the Kenyan coastal town of Lamu to South Sudan and Ethiopia by building thousands of miles of roads, railways and oil pipeline over a time-scale of 17 years. Officials in Kenya, the driving force behind the project, are pinning their hopes on the World Bank, the African Development Bank and the African Union, as well as Chinese investment, to provide the finance. But funding for this ambitious mega-project is not assured.

No comments:

Post a Comment