Kenya Pipeline Considers Eurobond to Fund Expansion Projects

(Bloomberg) -- Kenya Pipeline Co. is considering selling Eurobonds as part of a fund-raising exercise to finance capital-intensive projects around the country.

The state-owned company, which is expanding its infrastructure to cater for potential oil production in the north of the country and the construction of the Lamu Port Southern Sudan Ethiopia Transport corridor, plans to start raising capital in the second half of next year, Chairman John Ngumi said.

“There will be a need to raise finance money in either the second half of 2017 or the first half of 2018,” he said in a phone interview Monday from the capital, Nairobi. “There are many possible sources of money. Eurobond is just one.”

Kenya, East Africa's biggest economy, plans to start building an oil pipeline linking the northern Kenyan town of Lokichar to the proposed port at Lamu in 2018. The country plans to produce its first oil as early as June 2017 and to ship 2,000 barrels daily at the outset, according to Energy Secretary Charles Keter. The pipeline is expected to cost about $2 billion, Ngumi said.

In addition to the crude conduit, Kenya Pipeline plans to extend its refined-products pipeline from the western town of Eldoret to Kampala, the capital of neighboring Uganda, as well as expand storage facilities in Nairobi and construct LPG storage and bottling facilities. The company will also be involved in the construction of a proposed oil pipeline to Ethiopia, Ngumi said.

Funding Options

Among the other financing options being considered for the projects are loans from development finance institutions, funding arranged with a group of banks and domestic bonds, he said. KPC completed a $350-million syndicated loan last year, the proceeds of which are being used to fund the expansion of the refined-products pipeline from the port city of Mombasa to Nairobi.

Kenyan Treasury Secretary Henry Rotich said in May the government plans to sell Eurobonds in the fiscal year that began July 1, though the proceeds won't be used to finance the Lamu-Lokichar pipeline. The government sold a debut Eurobond in 2014.

While the amount of money to be raised by Kenya Pipeline in the following fiscal year hasn't been decided, it won't be “small money,” Ngumi said.

“We are not going to market to raise $10 million,” he said.

Kenya plans to export its first consignment of crude oil by June next year. The product will be moved via road from Lokichar to Eldoret before being loaded on a train to Mombasa. The state anticipates moving 2,000 barrels a day. Construction of the crude oil pipeline linking the oilfields to Lamu port is set to end in 2021, according to the Energy Ministry.

Kenya has 750 million barrels of crude resources, according to Tullow Oil Plc, which is prospecting for oil in the country.

To contact the reporter on this story: Adelaide Changole in Nairobi at achangole2@bloomberg.net. To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, John Viljoen, Michael Gunn