Ethiopia, Djibouti Sign $1.55 Billion Deal to Construct Pipeline

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Ethiopia and neighbour Djibouti have signed an agreement for a $1.55 billion fuel pipeline with developers Mining, Oil & Gas Services and Blackstone Group LP-backed Black Rhino Group.

The two countries in the Horn of Africa signed framework agreements on Tuesday for construction of the 550-kilometer (340-mile) line to transport diesel, gasoline and jet fuel from port access in Djibouti to central Ethiopia, the companies said. Financial close is expected in 2016, with construction scheduled for completion two years later.

Oil products are currently transported over 800 kilometres from Djibouti port by road to Addis Ababa through mountainous terrain. The small country is investing heavily in sea-ports and other infrastructure projects with the aim of becoming a commercial logistics hub for East Africa.

“The pipeline will increase energy security, aid economic development and reduce harmful emissions,” said Brian Herlihy, chief executive officer of Black Rhino, which is owned by funds managed by Blackstone Group LP.

He said the partners, who will operate under a 30-year concession, are working with the governments of Ethiopia and Djibouti and construction work is scheduled for completion in 2018.

The Horn of Africa Pipeline project includes an import facility with a storage capacity of 950,000 barrels in Damerjog, linked by a 20-inch diameter pipe to a depot in Awash. The pipe is capable of transporting 240,000 barrels of fuel a day.

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 imports. 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 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 points,” said MOGS chief executive officer Errol Gregor.

The state-owned Ethiopian Petroleum Supply Enterprise (EPSE) plans to import three million tonnes of refined oil products in fiscal year 2015/16 to meet demand, which has been increasing at 10 per cent annually.

EPSE’s chief executive officer Tadesse Hailemariam said the importation of three million tonnes of refined oil products represents an increase of 7.14 per cent from the 2.8 million tonnes recorded in the 2014/15 fiscal year.

He said EPSE plans to build about 160 retail outlets in the country to move away from the current use of private gas dealers.

EPSE is the state’s sole petroleum products importer. It was formed in 2012 when Ethiopian Petroleum Enterprise and the National Petroleum Depot Administration were merged. Sudan is the sole supplier of the country’s petroleum products following a signed agreement between the two countries.

Forty of the petrol stations will be located in the country’s capital city of Addis Ababa. Construction of retail sites could begin in a year’s time. EPSE expects to be allocated funds for the retail outlets by the Ministry of Finance and Economic Development in the 2016/2017 financial year.

The outlets will have a storage capacity of 250,000 litres of petroleum products. There are currently about 660 petrol stations in the country.

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