Oil and Energy Transition: Why Sudan conflict provides new hope for EACOP

The Sudan conflict is a catastrophe that must be stopped but its unintended consequences provide new optimism for the East African Crude Oil Pipeline (EACOP).

By Moses Kulaba, Governance and Economic Policy Center

With the constant fighting and insecurity along the pipeline and its pumping stations, the South Sudanese government is now open to exploring new opportunities via EACOP to guarantee its future oil exports.

On March 16th the government of Sudan admitted that it cannot guarantee the smooth export of oil from South Sudan, as a year of war has made it difficult to maintain or even protect the pipeline to Port Sudan.

In a letter to major oil companies involved in the oil production and export, Sudan’s Minister of Energy and Petroleum Dr Mohieldin Nam Mohamed Said admitted that the war had made it difficult to provide any guarantees for safety.

He acknowledged that the conflict was hampering the flow of oil to Port Sudan, as it took time to repair pipelines ruptured during the fighting. In addition, there was a telecommunications breakdown between the pumping stations (PS4) and PS5 in Sudan, which were shut down in the midst of heavy fighting. The area was an active military zone and access for repairs was not guaranteed.

As a response the South Sudanese government had declared a force majeure, making production and export impossible and thereby revamping suggestions to explore new possible safer routes for South Sudan’s oil.

The war in Sudan added to the challenges South Sudan faces in maximizing its only major resource – oil – to fund a financially constrained government and other operations.  As a consequence of the war, South Sudan’s oil production fell from 160,000 barrels per day in 2022 to 140,000 barrels per day in 2023. This is was more than half of the previous peak of 350,000 barrels per day before civil war broke out in 2013.

Talks to have South Sudan pump its oil south wards had all along been explored and presented as part of Uganda’s grand plan to make the EACOP an East African project by connecting and supplying all the EAC member states with oil and gas.

Under this grand plan and initial drawings, the Oil pipeline would radiate from its nerve center in Hoima with an artery of pipelines running northwards to South Sudan, westwards to the Democratic Republic of Congo (DRC), eastwards to connect Kenya’s oil from Turkana and southwards with an arm extended to Rwanda and long route via Tanzania to Tanga port.

Map showing initially considered alternative EACOP routes

But the progress of this was partly hampered by Uganda’s fall out with the Kenyan route and the existing agreements signed between Khartoum and Juba during the independence talks. Provisions in these required among others a concession that Sudan will retain territorial control of some oil rich territories and that South Sudan would continue exporting its oil via Port Sudan. By doing this, the government in Khartoum would maintain some revenues from the oil sector that had been largely lost with South Sudan’s cessation and independence.

I remember in a private conversation with a friend from Sudan some years ago he confided that during one meeting with   Sudanese youth and young professionals, President Omar Bashir, before his overthrow, had admitted that he was not sure about the economic future of Sudan without South Sudan. He clearly predicted a catastrophic economic meltdown leading to chaos and that was why Sudan had to maintain a grip on South Sudan. The oil pipeline was a win-win infrastructure politically and economically anchoring the two countries as good neighbors.

By Sudan admitting that the safety cannot be guaranteed and reconstruction of the damaged infrastructure will take longer than usual provides South Sudan with a legitimate cause to start exploring new safe routes for its oil.

An oil route from Juba southward would be beneficial to South Sudan, the EACOP but also good for the East African Community as a region. South Sudan derives 90% of its revenues from oil exports and would like to have a constant flow of this oil to sustain its economy. EACOP would guarantee that flow. South Sudan would also have access to other EACOP related infrastructure such as the refinery and international airport for other logistical needs.

An extended pipeline from Hoima northwards to connect with the oil from South Sudan would increase volumes of oil pumped out of EACOP by at least 150,000 to 200,000 barrels per day, increasing EACOP’s profitability and attractiveness to investors.

Moreover, with its oil, South Sudan would become a major regional player with a stronger voice in EAC matters perhaps more than it is today. The pipeline would bring Sudan in the north closer to the EAC, increasing its prospects for joining the EAC and thus facilitating the region’s expansion ambitions.

There could be some differences in the chemical composition and technical aspects of the two oils (Uganda and South Sudan) with perhaps one being waxier than the other but these complexities can be handled through technical re-engineering and design of the oil pipeline.

The EACOP has always been a controversial project with environmental activists and anti-oil crusaders campaigning against its construction.  Environmentalists argued that the world’s longest heated pipeline will have serious environmental impacts and contribute to global warming. The future profitability of the pipeline was also questioned given the global push towards a transition away from fossil-based system and uncertainty about the future of oil as an energy source.

None the less, plans for construction of the pipeline are ongoing.  Land compensations in Uganda and Tanzania was completed. An advance consignment of pipes was delivered and a coating and insulating plant for the pipelines was commissioned and already operational in Tanzania, paving way for the pipeline construction and ground laying to commence before end of 2024.

The conflict in Sudan therefore provides more impetus to the project as it opens a new door for possible access and increased volumes from South Sudan’s oil and taping into already existing markets can be guaranteed.

The future of oil as a dominant fuel in the global energy system is a controversial subject and a debate exists whether it makes sense to construct new oil pipelines and infrastructure.  

However, the crisis and the significance of oil in driving South Sudan’s economy comes at a time when there are all indications that major global super powers such as the United States and United Kingdom are backtracking on their commitments to end and move away from fossil or oil as source of energy.

Despite the announcements made at the COP27 and 28, in his maiden speech to Parliament, King Charles in November 2023 announced that the UK government will issue new licensing rounds for exploration and drilling of oil and gas in the North Sea. The rounds will go ahead each year so long as the UK remains a net importer of oil and gas and if emissions from UK-based production remain lower than those associated with imports.

In the US, Republicans have maintained a firm support for oil and Donald Trump, the most preferred Republican nominee for President has vowed to overturn any existing legislation and commitments made by the Democrats against the fossil energy sector, by signing an executive order to issue new rounds oil and gas drilling.  According to Trump this would be his first executive order immediately signed, if he was elected to power in November of 2024. Clearly, the US political will is divided and the future US policy terrain on oil and gas cannot be guaranteed.

Quietly, the leading oil producers are strongly supporting continued pumping of oil. Despite global campaigns, large oil producers are still skeptical that renewables can replace oil in the medium term and by 2050. They believe that the focus should be on decarbonizing oil and not ending its supply and use all together. Ending use of oil would be returning the world to stone age error, one Middle East leader remarked at COP28 before backtracking after coming under intense criticism. The approved language at COP28 was phase down and not phaseout. Oil therefore may have a longer lifetime than earlier anticipated.

Despite the catastrophe that the war has caused, that we all condemn, Uganda and Tanzania should exploit the opportunity it provides to ramp up and conclude talks with South Sudan on the viability of exporting its oil via EACOP.

How EAC can benefit from its Critical or Transitional Minerals

The EAC has vast deposits of minerals critical to driving technology to support the green industrial revolution and yet the region lacks a proper framework to govern and maximize benefit from this mineral potential.  Our analysis shows that all is not lost. There is still an opportunity for the EAC to reorganize and take a share from the increasing critical or transitional minerals demand.

By Moses Kulaba, Governance and Economic Policy Center

@critical minerals @mineralsgovernance @eac 

What is the EAC’s regional problem?

Critical or transitional minerals are loosely defined as mineral commodities that have important uses to industrial technology to support the transition to a clean energy future, have no viable substitutes, yet face potential disruption in supply. These minerals include (but limited to); Graphite, Coltan, Nickel, Tungsten, Tantalum, Tin, Lithium, Manganese, Magnesium, palladium, Platinum, Beryllium, copper, fluorspar, Holmium Niobium, Rhodium, Titanium, Zinc etc. The EAC has vast deposits of some these and yet the region lacks a proper framework to govern and maximize benefit from this mineral potential.

Minerals as a national resource vs regional resource

The issue of mineral is politically sensitive. It lies at the intersection of national pride and sovereignty. Minerals are considered as a national resource whose value cannot be discussed or shared at regional level. Most countries have chosen to address mineral issues at a national level, carefully safeguarding what they consider their national interests.

Unfortunately, by taking this route, EAC mineral rich countries have exposed themselves to weaker negotiation power, and fallen easy prey to the divide and rule game played by some quick profit accumulation seeking multinational mining companies.  These mining companies take on each country as an independent jurisdiction, setting each up for competition against the other and demanding exorbitant favorable terms to invest.  The net effect is that EAC mineral rich countries have weaker negotiating powers and signed off bad deals. It is perhaps for this reasons that the EAC has selected to focus on protecting aquatic and terrestrial ecosystems such as forests and mountains in shared areas.

Raging political instability and counter accusations for harboring insurgents.  East Africa’s mineral rich regions face raging political instability, with each member states accusing the other of supporting and harboring hostile insurgent’s, violation territorial sovereignty and plundering of the abundant mineral resources.  For example, the DRC accuses Rwanda of supporting the M23 in Eastern Congo while Rwanda has constantly accused the DRC of harboring the FDRL. Similarly, Uganda’s Ailed Democratic Forces (ADF) rebels have found refuge in the DRC.  Burundi accuses Rwanda of supporting hostile rebel groups against the Burundi government. As a consequence, EAC’s mineral rich regions have failed to secure maximum economic benefits from its mineral wealth. Efforts to jointly pacify the region through a military intervention by the East Africa Regional Standby Force failed miserably with the force withdrawn at the end of 2023.

Failure to curb cross border smuggling and illicit minerals trade.  The UNCTAD data from COMTRADE and other online sources show a big difference between reported mineral exports and imports data from receiving countries. For example, in 2021 the DRC reported exporting a net weight of cobalt of 898,869 kg valued at USD 3,277,615 while China reported importing a net weight of 190032 kg valued at valued at USD92,065, 332 in the same period. The difference between the reported export value by the DRC and the reported import value by China was a whooping USD 88,784,717. There are large disparities between the DRC’s minerals trade data with Dubai and similarly Kenya’s mineral trade data with Dubai.

Yet, the vice has continued unabated. The recent arrests of fake gold traders in Nairobi’s upscale Kileleshwa suburb confirms that illicit mineral business is rife in the region. Illicit minerals are crossing borders undocumented, with cartels exploiting the weaknesses in the border control mechanisms to make shoddy deals worth millions of dollars. The arrested illegal mineral traders had fake Uganda Revenue Authority (URA) documents and stamps showing that Uganda was the source country. There are reports that DRC’s gold and coltan is smuggled through Rwanda and Uganda. Rwanda , a fairly none rich mineral country is a large mineral exporter. According to government reports, Rwanda’s annual mineral export earnings in 2023 was USD1.1billion reflecting a 43% increase from USD772bln in 2022. Clearly illegal trade is denying the EAC millions of dollars in economic benefits.

Lack of regional harmonization of the extractive sector regulatory framework. There were attempts to develop a model minerals legislation but all these efforts suffered a silent death. As expressed by one of the EAC members of parliament, Arusha has become a cemetery of good policy intentions. Good at expressing desire and slow at action and implementation.

Poor geological survey data, compared to superior data sets in possession of mineral companies. This has often tilted the negotiation power balance in favor of the companies, leading to signing off poor deals by mineral rich host countries.

What opportunities exist?

 Maximizing on current EAC partners trade in minerals and mineral based products.

According to EAC regional statistics, the trade by EAC partner states in minerals fuels, mineral oils, products of their distillation, bituminous substances and mineral waxes were the most traded with a value of USD810.7million dollars in 2022. This was followed by trade in natural or cultural pearls, precious or semi-precious stones, precious metals valued at USD588.3million. Trade in nuclear reactors, boilers, machinery and mechanical appliances thereof ranked third with a value of USD238million[1]

This therefore shows there are a raw material and there is a market for mineral based products even within the EAC.  Scaled value addition and intra trade in minerals and mineral based products to serve the existing demand can significantly boost internal regional industrialization, create jobs and economic growth

Leveraging on current and future global critical/transitional minerals demand

With a regional approach, the EAC could benefit from the rapidly expanding demand and prices for green transitional minerals. Since 2020 the global commodity prices for Nickel, Cobalt, Coltan, Lithium and Copper has been on the rise. According industry experts, such as Equity Group’s CEO, Dr James Mwangi, the demand for these minerals can only go up, and prices can only go up because of their limited supply versus the global targets to reduce emissions by 2030. It is for this reason that global consumers such as China, Australia are in the rush to secure supply chains all over the World.  Tech players such as Tesla’s Boss, Elon Musk have equally explored possibilities to establish plants in the DRC and Tanzania so as to secure the raw materials and add value at source. So far, neither the EAC nor its member states have capitalized on these interests to develop a regional road map for investments into the green or transitional minerals subsector. Elon Musk’s investment plans have not materialized.

Use critical/transitional minerals demand to forge new strategic economic relationship

According to the Carnegie foundation, the combination of key mineral endowments in African countries and U.S. objectives to reorient clean energy supply chains away from competitors like China can serve as the foundation for a new economic and strategic relationship. In 2022 the US announced its desire to re-establish a new relationship with Africa driven by trade and investment. The EAC can use its abundant critical or transitional minerals potential to negotiate new long-term relationships based on mutual economic benefits away from the traditional donor recipient approach.

Attracting investments in Energy Sector

The EAC has large opportunity for investment into its renewable energy sector. Uranium, a key fuel in nuclear plants and nuclear fission, is found in eight locations in the South Kivu and Katanga provinces in the south of DRC. Tanzania and Uganda have large deposits of Uranium. These clean energy minerals are also backed with hydropower potential of the giant inga dam and Kenya’s geothermal potential.

The EAC commits to development of the energy sector covering both renewable and non-renewable energy sources. This is aimed at facilitating the broader EAC objectives of attracting investments, competitiveness and trade for mutual benefit. Despite this, there has not been joint EAC investment attraction drive purposed towards its regional power potential.  The regional plans to develop the giant inga dam as a flagship Agenda 2023 project contributing to the towards East Africa’s power pool have remained stagnant.

What EAC member states can do

  • Abandon limited nationalistic views and pursue large economic interests, from a regional lens
  • Conduct regional mapping and improve mineral geodata sets
  • Rekindle and accomplish plans to develop regional frameworks for mineral governance
  • Facilitate regional investment campaigns profiling critical minerals and clean energy sources as tier one commodities available for investment for the EAC
  • Stop the guns and think development

What would be the benefits of acting as an EAC region

  1. Joint investment promotions and attraction of the best investors
  2. Increased negotiation power and leverage for better deals
  3. Expanded regional value additional chains and industrial projects driven by large economies of scale. According to global statistics the DRC was the largest cobalt reserve (about 3.6million metric tons yet China was the largest processor(85Mt)
  4. Increased cooperation and opportunities for lasting peace
  5. Expanded economic opportunity and benefit for citizens.

 

[1] https://eac.opendataforafrica.org/

Critical Minerals: EAC destined large critical minerals block, yet benefits remain elusive

With the DRC and Somalia on board and new coltan discoveries made in Kenya, the East Africa Community (EAC) is now destined to become one of the largest critical minerals deposits rich and source region in the world, yet maximizing value and benefits as region remains elusive.

By Moses Kulaba, Governance and Economic Policy Center

@criticalminerals @energytransition

On the 15th December 2023, the Federal Republic of Somalia became a full member of the EAC becoming the 8th country to join this economic block. With its admission following closely on the DRC in 2022, the EAC has a total population of 320 million people with a geographical size of about 5.4million sqkm straddling from the Indian Ocean coastline to the Atlantic coastline.

The EAC now boasts as one of the largest single economic block with large deposits of minerals critical for mitigating climate change by driving the green industrial revolution and transition to clean energy. There are already prospects that Ethiopia and Djibouti will be joining the EAC. If this happens the EAC’s geographical size, population and mineral wealth will expand to rival or overtake other economic regions such as the European Union.

The size of Mineral Deposits combined

According to the EAC reports, the region is endowed with a variety of minerals, including fluorspar, titanium and zirconium, gold, oil, gas, cobalt and nickel, diamonds, copper, coal and iron ore. Such mineral resources present an opportunity for development of the mining industry, which is currently underdeveloped.

Mineral Resources in EAC

Country Precious metal, Gemstones & Semi-Precious Metal Metallic Minerals Industrial minerals
Burundi Gold Tin, Nickel, copper, cobalt, niobium, coltan, vanadium, tungsten Phosphate, Peat
Kenya Gemstones, gold Lead, zircon, iron, titanium Soda ash, flour spar, salt, mica, chaum, oil, coal, diatomite, gypsum, meers, kaolin, rear earth
Rwanda Gold, gemstones Tin, tungsten, tantalum, niobium, columbium pozzolana
Tanzania Gold, diamond, gemstones, silver, PGMs Nickel, bauxite, copper, cobalt, uranium Coal, phosphate, gypsum, pozzolana, soda ash, gas
Uganda Gold, diamond Copper, tin, lead, nickel, cobalt, tungsten, uranium, niobium, tantalum, iron Gypsum, kaolin, salt, vermiculite, pozzolana, marble, soapstone, rear earth, oil
South Sudan Gold, silver Iron, copper, tungsten, zinc, chromium Oil, mica

Source: EAC Vision 2050 and South Sudan Development Strategy

With the pressure of climate change and the 4th industrial revolution driven by a few green minerals, the EAC hosts vast deposits of minerals such as coltan, nickel, tantalum, copper and others vital in driving the green technological revolution to a cleaner energy future.

The admission of the DRC to the EAC was a game changer to the region’s positioning as a global player in the critical and strategic mineral’s space.  According to multiple sources the DRC is the world’s leading producer of cobalt, used in the manufacture of batteries. It is also the world’s fourth-largest producer of copper, used in the assembly of electric cars and the infrastructure of most renewable energy sources. Lithium deposits, estimated at over 130 million tones, are also present in the southeast.

The DRC has most of the mineral ores that produce key components in making computer chips and electric vehicles, technologies that are powering the drive to the future. In a typical computer, copper and gold are key components used in making the monitor, printed circuit boards and chips. Cobalt constitutes 6.45 percent of the materials that make electric vehicle batteries while copper constitutes 25.8 percent. Jointly, copper and cobalt constitute more than a third of EV batteries.

DRC is rich in these minerals, producing 68 percent of the world’s cobalt — the largest globally — and over 1.8 million tons of copper annually. Copper is estimated to gain and maintain more value on longterm compared to other minerals.

Before the DRC and Somalia’s membership, the EAC was already a major player. According to Geological Survey of Tanzania, Tanzania has close to 24 documented critical minerals such as Nickel, Tantalum and sits on the 4th largest premium grade graphite deposits in the world. Between 2005 and 2020, there was an exploration boom relative to other minerals for Tanzania’s Critical Minerals.

Uganda has vast deposits of copper and tungsten in its south western border areas while Rwanda is one of the world’s largest producers of tin, tantalum, and tungsten (3Ts) and coltan. Burundi has copper, cobalt and nickel in 2019, Burundi produced about 2% of the world’s production of tantalum.  Kenya has vast deposits of titanium, a mineral used in the manufacturing of aircraft transportation and solar panel parts. The new discoveries of coltan announced in Embu County in 2024 adds to Kenya’s list of valuable minerals. Although the commercial volumes of the new discoveries are yet to be determined, Kenya’s announcement expands the EAC’s critical or green mineral deposit map and its role in the green energy transition. Somalia, the EAC’s new entrant has some deposits of tantalum, tin and uranium.

These minerals lie along a common geological mineral belt running from Ethiopia and South Sudan downwards across the DRC, Uganda, Kenya, Rwanda, Burundi and Tanzania into Mozambique. The combined volume of these green minerals’ deposits competitively will rival other countries like China, Australia and regions such as the Lithium triangle in Latin America.

Given the global challenges related to climate change and the potential transition to a clean future. Energy Security and Energy transition are among the hottest areas of investment. The dash to secure deposits and supply chains of minerals critical to the development of green technology is on. Many countries endowed with these minerals are seeking to create wealth based on this transition.

Despite this critical mineral resources’ wealth, the EAC has failed so far to leverage and maximize economic benefits as a single region remains elusive. The EAC’s share of global investment in this lucrative extractive sector remains small. The EAC is riddled with extractive policy fragmentation, overriding nationalistic political desires and catastrophic death of joint extractive policy and governance actions.

According to the EAC treaty, the EAC partner states have agreed to take concerted measures to foster co-operation in the joint and efficient management and sustainable utilization of natural resources within the Community. Yet the EAC has no publicly available documented comprehensive regional plan on governing or managing mineral resources. The EAC has focused on management of aquatic and terrestrial ecosystems.  Minerals are categorized as other natural resources.

By treating Minerals as a somewhat lesser regional priority, the EAC is missing out on a huge current and future economic opportunity internally and externally to drive the region to prosperity. We will discuss more about what these opportunities are and how the EAC can benefit in a separate article. Keep reading.

 

Extractive Transparency and Accountability

Extractive Transparency and Accountability is the pillar for citizen participation, investment attraction and use of extractive resources. If the people know, risks to tax evasion, corruption and the resource curse are reduced.

The East African region is awash with vast natural resources. Over the past five years, the East African region has registered significant discoveries of Oil in the Albertine Graben in Uganda and Turkana in Kenya. The prospects of Natural gas along the coast line of Somalia are promising. Few years ago Tanzania discovered massive natural gas deposits along its coastline adding already to its large extractive resources base. By these standards, the region has a potential for enjoying a natural resource boom.
However, experiences from Tanzania have shown that weak governance and oversight deficits can thwart benefits from the sector. Reports show that for decades the Country was not able to harness the vast extractive resources for development. The government lost revenue through bad contracts with mining companies and communities did not significantly benefit from the minerals and mining operations in their areas. In DRC minerals have been a source of conflict and the environmental impact is tremendous.

Tanzania is a signatory and  member to global transparency and accountability standards such as the Extractive Industries Transparency Initiative (EITI). Tanzania has enacted  some of these principles into a national law,  the Tanzania Extractive Industries Act (TEITA) 2015. The country has established in law, a Multistakeholder body (comprising of government, civil society and companies), as platform for continuous consultation and mutual accountability. However there are deficits on some frontiers of transparency such as not publishing yet signed extractive contracts. Tanzania’s milestones on transparency partly inspired it East African neighbor  Uganda, to sign up to the initiative. The EITI provides an opportunity for East African Countries such as Tanzania, Uganda and DRC to  expand their transparency frontier  and thus expanding  citizens participation and attraction of largescale investment into their extractive sectors. However, citizens awareness and participation is still limited and governance deficits still exist.

This project  seeks to help  governments improve their transparency standards in policy and practice and citizens to be more aware and to participate in the extractive sector via;

  • Analytical pieces on extractive Transparency and Accountability
  • Local and International Advocacy on extractive governance and economic justice
  • Training and convenings on extractive sector governance

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