Category Archives: LAPSSET

Oil Pipeline, Economics & Politics

It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.

M7 poster 2

The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still, Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.

Pipeline Impact

Last year at the TDS Nairobi summit, during the 10th Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:

  • It is a legitimate objective for any resource-rich country to try to maximize the value of its resources.
  • If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
  • Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
  • With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there won’t be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).

More on Kenya Pipeline:

oil tankers

  • The Kenya Pipeline Company is charged with transporting and storing petroleum products.
  • A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
  • Meanwhile, Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.

Almasi & Coca Cola

Almasi, the holding company for three Coca Cola bottling plants (Mt. Kenya Bottlers, Rift Valley Bottlers, Kisii Bottlers), had 2014 revenue Kshs 6.7 billion (up from 5.8 billion) and a pre-tax profit of Kshs 516 million (up from 256M). The company, which is 51% owned by Centum Investments, will pay out a dividend of 0.12 per shares (total Kshs 92 million) to shareholders.

The company has installed a new, and faster, glass bottling line and will launch a plastic bottling one at Nyeri in 2016, in line with trends in the beverage business where plastic, not glass bottles, are the preferred buy choice by consumers.

Almasi distributed about 29% of the Coca Cola products in Kenya, equally spread by the three plants and they see the governments plans for Northern and Eastern Kenya where improvements in infrastructure (around LAPSSET) and security over the next few years as an opportunity to open up new markets for their products.

The company also has a few tax claims from the Kenya Revenue Authority, but the directors don’t feel they will materialize.

$1 = Kshs 102

Kenya Euro Bond A to Z

Excerpts from the prospectus for the ‘Euro bond’ being floated by the Kenya Government. 

Advisors: Include two Kenyan law firms (Kaplan & Stratton, Anjarwalla & Khanna) and 3 UK ones. Citibank are the registrars and paying agents and lead managers are Barclays, JP Morgan, QNB, Stanchart and Dyer & Blair is a co-manager. The prospectus notes that while no person has a material interest in the offer, the advisers may perform banking transactions with the Kenya government.

Also, the Kenya High Commission in London is the processing agent and the Court of International Arbitration in London will resolve bond investor disputes. 

Anglo Leasing There is mention of the status of 18 contracts unearthed following a passport deal that was found to be irregular. The prospectus notes that 4 worth Kshs 19B were canceled (with Kshs 1B recovered?!), and 3 worth Kshs 6.8B were completed. Of the other 11 worth Kshs 30 billion, 2 were settled directly, 2 received payments of $16.4M in May 2014 after a court judgment, 6 had not started (but what happens?), and on the last one (security equipment to the NIS) the company has made a demand of Kshs 3B but has not sued. China:  Few mentions about the country in terms of trade balance, debt, and the railway. 

Denominations: The bond is  issued in denominations of $200,000 (~Kshs 18 million)

Dublin:  The bond will be listed on the Irish Stock Exchange   

Euro Bond: The phrase does not exist in the document

Interest Rate is not stated

Investors: The offer is meant for qualified institutional investors (QIIs) and bond notes may not be issued offered or sold in Kenya, South Africa, Qatar, UAE, Singapore, Hong Kong, or the USA.

Debt Performance: Total debt at the beginning of 2014 that is owed by the Kenya (central) government was $24 billion. Debt service is expected to drop from Kshs 200B this year to about Kshs 150 billion for the next two years.

Also, the Kenya government believes its current account deficit of (cited at $3.7 billion) is overstated citing, among other reasons; the shilling has remained relatively stable, the measures excluded unclassified services (which have quadrupled) and the amount of foreign direct investment (FDI) is under-reported (by up to 50%?!)

The government has guaranteed debts to among others; Kengen – $250M, Kenya Ports – $140M, Kenya Railways – $45M and the Kenya Broadcasting corporation $39M. Kenya has a history of debt re-schedules at Paris (1994, 2000, 2004), and London (1998, 2003) and has had some debts canceled by China, Holland, and Finland 

Purpose: Funds will be used for infrastructure projects and to pay off a $600M loan that matures in August 2014.  Some major infrastructure projects include railway expansion (new wide gauge railway will be built in 3 phases at a total cost of $13 billion) LAPSSET (with a new port at Lamu, railway, road, oil terminal & pipeline and resort cities at Lamu, Isiolo, Lake Turkana), 4 dams at a cost of $16.8 billion and the replacement of the Mombasa-Nairobi oil pipeline.

Risks  Insecurity is cited. Another is the ICC (International Criminal Court) cases for which the political implications of a conviction cannot be predicted. Taxes Payments will be made to bondholders without deducting any withholding taxes. However,   the prospectus has tax advice for US, UK and Kenyan investors who may be interested in buying the bonds. For Kenya investors, interest payable on the Notes has been exempted from income tax – but that is yet to be approved by parliament, who may revoke that)  

Euro bond document found via @alykhansatchu  

More at the WSJ who expect the Euro bond rate to be at about 7%