East Africa: Regional Integration for a Brighter Future

February 26, 2016 | Investment Development

By Fanuel Lakew | –

It is obvious that pipelines are a safe and efficient means of transporting large quantities of crude oil and natural gas over and through the land as energy is fundamental to economic security.

These days, having large-scale transportation of natural gas using tanker truck or rail is not feasible as it is costly and takes large amount of resources. So pipelines are more cost-effective than the alternative transportation options. Experts in the area ascribed that pipelines require significantly less energy to operate than operating trucks or rail and have a much lower carbon footprint.

Recently, a new program which is related with the aforementioned issue was launched here in the Horn of Africa. Ethiopia and Djibouti signed an agreement for a 1.55 USD billion fuel pipeline with the developers of Mining, Oil & Gas Services and Blackstone Group LP-backed Black Rhino Group. The two neighbouring countries have inked agreements last September for construction of the 550-kilometer line to transport diesel, gasoline and jet fuel from the port access in Djibouti to Ethiopia with the construction scheduled to be completed after two years.

In the last two decades, the government of Ethiopia has registered a remarkable economic growth in various sectors. And the government has spent money to develop infrastructural development and generate income from various sources; on this regard fuel is delivered by tanker trucks. Black Rhino CEO Brian Herlihy noted that: “The pipeline will increase energy security, aid economic development and reduce harmful emissions.” This project of Horn of Africa Pipeline will have storage capacity of 950,000 barrels in Damerjog, Djibouti and linked to a storage terminal in Central part of Ethiopia, Awash in which 51-centimeter line is capable of transporting 240,000 barrels of fuel a day.

Thus, it is believed that the project is expected to increase the efficiency and safety of Ethiopia’s supply chain by reducing transport costs, while increasing the scale of oil products import. The project will also reinforce Djibouti’s position as a regional shipping hub by expanding the capacity of its port.

The Horn of Africa project as well will sustain the momentum of economic growth and growing fuel demand in both Djibouti and Ethiopia by enabling high-quality, consistent energy supply at reasonable cost. The Ethiopian Petroleum Supply Enterprise plans to import three million tons of refined oil products in the fiscal year 2015/16 to meet its demand, which has been increasing at 10 percent annually.

According to the Enterprise’s CEO Tadesse Hailemariam, importation of three million tons of refined oil products represents an increase of 7.14 percent from the 2.8 million tones recorded in the 2014/15 fiscal year. The enterprise also plans to build about 160 retail outlets in the country to move away from the current use of private gas dealers. Sudan is the sole supplier of the country’s petroleum products following a signed agreement between the two countries.

As to Ethiopian Ambassador to Djibouti Suleiman Dedefo, the project is a private investment where expenses are fully covered by the undertaker Black Rhino.

In his two days official visit in Djibouti recently, US Assistant Secretary of State Antony Blinken has noted the importance of this new program. These initiatives included: Plans to construct pipeline which will transport oil between Ethiopia’s Awash region and Djibouti. Black Rhino, an American company that invests on African infrastructure development, will fund the project, which will also include the creation of new oil storage facilities in Djibouti. And the project is scheduled to begin in June 2016.

Furthermore, another agreement was signed between Ethiopia and Djibouti to construct a pipeline to transport natural gas from the Ethiopian region of Ogaden to Djibouti. The Chinese company GCL-POLY GROUP won the bid that costs over USD three billion.

Thus, such integration is crucial for the regions brighter future. That is why Ethiopia is exerting its level best to integrate the regions in various ways through proving power supplies, planning to connect the region through railways and the like. So this would help to have strong regional cooperation in the Horn of Africa. The region as well as Africa would have surely learned a lesson from the European Union on the importance of integration and how member countries of EU have benefited from it.