Ethiopia:Government cancels planned Ethio-Djibouti oil pipeline project

The Ethiopian government canceled the planned Ethio-Djibouti fuel pipeline project, which was proposed to be undertaken by Black Rhino Group.

In 2014 the South Africa-based infrastructure investment group, Black Rhino, proposed to the Ethiopian government to build a 550km long pipeline to transport diesel, gasoline and jet fuel from the Port of Djibouti to central Ethiopia. The project is estimated to cost 1.5 billion dollars. The Ethiopian government had reviewed and accepted the proposal in principle.

Backed by the US investment group Black Stone, Black Rhino has undertaken a feasibility study on the project, which was going to be the first fuel pipeline in Ethiopia.

A senior official at the Ministry of Transport told The Reporter that the government has canceled the project due to financial reasons. The official said though the pipeline project is viable, the government wants to protect the Ethiopian Railway Corporation which will soon start transporting petroleum products. “We have built a new railway line to Djibouti with an investment cost of four billion dollars. And 100 fuel tanker wagons are ready to transport fuel from Djibouti. We have to maximize the use of the railway and pay back the loan to the Export Import (EXIM) Bank of China first,” the official said.

He said that while the country has a newly-built railway line, the construction of another expensive infrastructure cannot be justified. The International Finance Corporation (IFC) – the investment arm of the World Bank – had expressed interest in financing the planned Ethiopia-Djibouti fuel pipeline project.

“It is not that the project is unable to secure loan but while we are having the railway line in place building another fuel transport infrastructure is not economically a sound decision,” the Ministry of Transport official said. However, he said the construction of the pipeline can be considered after four or five years.

Ethiopia’s annual fuel import, which is growing at a rate of ten percent, has reached 3.8 million MT. The country so far uses tanker trucks to transport the fuel from the Port of Djibouti to central Ethiopia costing the country dearly. Fuel theft, adulteration and waste are also other challenges with the road transport.

The governments of Ethiopia and Djibouti signed a framework agreement on the planned pipeline construction in 2015.

Black Rhino finalized the feasibility study and it had confirmed that the project was feasible. The company was working on the implementation study. It had also presented the final feasibility study to the Ethiopian government, which reviewed the study and was supposed to give a green light to proceed with the project.

The fuel pipeline project, known as the Horn of Africa Pipeline, includes an import facility and 950,000 barrels of storage capacity in Damerjog, Djibouti, linked to a storage terminal in Awash, Ethiopia, 226km east of Addis Ababa. According to Black Rhino, the 20-inch (51-centimeter) line is capable of transporting 240,000 barrels of fuel daily. The total cost of the project is estimated at 1.55 billion dollars.

The project is a 50-50 joint venture by Black Rhino and Mining, Oil and Gas Services (MOGS), a unit of the Johannesburg-based Royal Bafogeng Holdings. Financial close was expected in 2017, with construction scheduled for completion in 2019. The developers were expected to raise at least one billion dollars debt financing.

According to the project proposal the project would be awarded to Black Rhino on a build, operate and transfer (BOT) terms. It was proposed that the developers would build the facility, operate it for 30 years and transfer it to the Ethiopian government. It was believed that the developers need to raise at least one billion dollars debt financing.

A non-oil producing country, Ethiopia annually imports 3.8 million metric tons of refined petroleum products, most of it via the port of Djibouti, at a cost of 2.8 billion dollars.

An expert at the Ethiopian Petroleum Supply Enterprise told The Reporter that although the investment cost is high, pipeline is the safest and cheapest mode of fuel transport per one ton of oil. According to the expert, it is also technologically advanced as it uses IT-based monitoring systems.