December 2019, Vol. 246, No. 12


Launch of ACFTA and Africa’s Pipeline Industry

By Shem Oirere, Contributing Editor

New oil and gas discoveries in Africa and the drive by some leading hydrocarbon producers to reverse their declining output caused by maturing production fields, is expected to impact the region’s pipeline sector soon. 

Producing countries have joined forces to construct new cross-border pipelines, or partner in the maintenance and upgrade of existing ones has kept the hydrocarbon products’ cross-border transportation market active. 

This comes as a new regional free trade area, the African Continental Free Trade Area (ACFTA), was launched with the potential to serve as a catalyst for the manufacturing and trade in pipeline industry related products. 

Certainly, recent discoveries bode well to support such developments. 

Uganda has, for example, confirmed the discovery of 1.7 billion barrels of oil and approved the development of 1.2 billion barrels that would be shipped out via the 870-mile (1400-km) Uganda-Tanzania Crude Oil Pipeline that would link the oil fields in Uganda to Tanzania’s Indian Ocean port of Tanga. 

Meanwhile, Kenya has, together with Uganda and Rwanda, completed feasibility studies and tender documents for the extension of the existing oil products pipeline originating from the port town of Mombasa and currently terminating at the Eldoret. The line is expected to be extended to Uganda and Rwanda. 

In southern Africa, Mozambique, with the discovery of more than 180 Tcf of natural gas reserves, has signed an agreement with South Africa for the construction of a $1.2 billion pipeline project. The 537-mile (865-km) pipeline is linking Mozambique’s gas fields at Temane and Pande to Secunda industrial plant in South Africa. which is owned by chemical’s giant Sasol. 

Elsewhere in Africa, Morocco and Nigeria have revived the 2016 plan for the construction of a 3,515-mile (5,660-km) oil pipeline over a 25-year period. 

Moreover, increasing incidents of sabotage of oil and gas pipelines, especially in Nigeria and Libya, means increased repairs and short-interval maintenance schedules, increasing the supply of related pipeline components. 

The launch of ACFTA in July 2019 is expected to help ease trade in oil and gas pipeline transportation and support Africa’s industrial growth, especially in manufacturing and the supply of related products, such as metal sheets, welding rods, coatings, valves, tubes and pipes. 

The ACFTA, has come with various components including trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and market integration with signed-up member-countries expected to review their cross-border trade structures and practices to be aligned with those of the new continental free trade area. 

“The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than $3.4 trillion” said Francis Mangeni, director of Trade and Customs at the Common Market for Eastern and Southern Africa. 

Furthermore, for the region’s pipeline industry, a shift is expected in terms of harmonization of certification, standards, local content requirements and tariffs on vital industry products, such as steel and plastic tubes and pipes. 

Already, some of the existing sub-regional trading blocs, such as the East African Community (EAC), Common Market for Eastern and Southern Africa (COMESA), Southern African Development Cooperation and the Economic Commission Organisation of West Africa States (ECOWAS), have existing trade agreements on traded goods, including pipeline components with the ACFTA likely widen the market reach for manufacturers and suppliers. 

Three of the trading blocs, COMESA, EAC and SADC, launched a Tripartite Free Trade Area (TFTA) in 2015 to create a single market for 27 African countries, with a combined population of about 700 million people and Gross Domestic Product of more than $ 1.4 trillion. 

TFTA is based on market integration, infrastructure development and industrial development and aims to facilitate “development of regional infrastructure for cross-border trade and lead to harmonisation of trade regimes, stimulate industrial development through creation of value chains and facilitate movement of business persons,” according to a previous statement by the EAC secretariat. 

For tube and pipe manufacturers and suppliers, the recent conclusion of market access talks by the EAC and Southern Africa Customs Union, consisting of Botswana, Eswatini, Lesotho, Namibia and South Africa, was a major boost to the drive to liberalize tariffs within the TFTA region. 

“The main aim of the SACU-EAC market access negotiations has always been to provide commercially meaningful market access for the private sector in the two regions,” said the EAC statement. “The SACU-EAC private sector will thus have access to new and dynamic markets for exports as well as new sources of 

inputs for domestic production processes, thereby enhancing intra-regional trade,” 

However, members of existing free trade areas in the regional blocs do not have to re-negotiate anything anew among themselves,” according to Mangeni. 

“This should be harvested into ACFTA, on the basis of the agreed principle of preserving and building on the acquis,” he added. 

According to the ACTFA rules of origin, raw materials or semi-finished goods in any industry that originate from any of the 37 countries for further processing in another country that is party to ACFTA “shall be deemed to have originated in the State Party where the final processing or manufacturing takes place.” 

Materials such as stainless steel, steel, copper or plastic for making of tubes and pipes are some that likely to benefit from this rule of origin. 

Except for a few agreed on exceptions among member-states, the ACFTA agreement said, “products further manufactured in a State Party shall be considered as originating in a State Party where the last manufacturing process takes place.” 

At a previous forum of Africa’s top customs’ officials, Uganda Revenue Authority Commissioner General Dorothy Akol, said the ACFTA agreement promises to increase intra-African trade by 52% by 2022 and create new job opportunities, especially for women 

Currently, leading pipeline industry manufacturers in the region such as South Africa, have to grapple with various taxes, unregulated informal markets, varied standards requirements and tariffs when bidding for and supplying pipeline related materials especially for the construction of cross-border pipeline projects or for maintenance contracts of existing pipelines. 

Looking ahead, ACFTA is expected to help in minimizing conflict involving cross-border pipeline transportation as has been the case between Sudan and South Sudan. 

When South Sudan attained independence from Sudan in mid-2011 a culmination of the 2005 peace deal that ended Africa’s longest-running civil war, it turned out the country had remained with 75% of the key oil producing oil fields but with no access to the Red Sea, hitherto the sole route to access the international oil market. 

A conflict ensued later after Sudan imposed a $30/barrel fee on South Sudan for the use of oil pipeline infrastructure. South Sudan rejected the fee and suggested $0.63/barrel and one-off payment of $1.7 billion to Sudan for the loss of oil revenue after the former’s independence. The issue was never 

conclusively resolved but with the emergence of a free trade area, there is a possibility some progress will be made. 

At the continental level, Africa’s pipeline industry is still grappling with the growing informal market for pipeline and related products that creates avenue for importation of cheap pipeline products. Also, the is still fear among some potential investors in the sector of the inherent risks such as the frequent attacks and sabotage of oil infrastructure in Nigeria. 

Furthermore, the delayed Uganda-Tanzania oil pipeline brought to the fore the challenge of dealing with numerous public and private sector actors in a single cross-border pipeline project, especially because of difficulties in reaching consensus on how the parties would benefit from operations, ensure safety and address environmental issues. 

ACFTA may not immediately unlock the full extent of the existing potential of Africa’s pipeline transportation market, but it would have created a platform for improvement of cross-border trade in oil and gas pipeline transportation and opened opportunities for increased transactions in associated products. P&GJ

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