Energy Imports Transportation

Another risk factor affecting the energy crisis management capability is exposure to energy import risks emanating from import corridor safety: sea transportation safety and the added risk for land transportation through third countries for land-locked States. Land transportation for land-locked countries in the EAC countries has largely been open, facing no major sustained disruption due to political instability. However, the risk level is demonstrated during the post-election violence in Kenya after the 2007 presidential elections that halted land transportation and disrupted fuel deliveries over pipelines. Uganda

6.5 7 7.5 8 8.5 9

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

East Africa sub-region's Africa Share of crude oil refining (%)

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has attempted to diversify to Tanzanian road transportation route to deal with such risks by offering subsidy of USh 150/litre of fuel routed through the Southern Corridor. Road restrictions in Tanzania, including limits on the wheel capacity of trucks, remain a concern to Uganda. Similarly, Rwanda and Burundi are affected by their land-locked status. There are plans to expand oil-pipeline infrastructure to Rwanda to mitigate such inland transportation risks.

South Sudan also relies on oil import routes through Kenya. Due to the state of poor road conditions, particularly during raining seasons, supplies are frequently disrupted.

Connections through the Uganda corridor are being pursued, including with the improved road connection with Uganda, partly funded by the US government. Ethiopia is also impacted by road transportation.

The dispute with Eritrea has led to the shut-down of road transportation routes to all portal cities of Eritrea since 1998, and its use of the Assab oil refinery in Eritrea has been severed since then (the refinery also stopped operation in 1997/1998). This has forced Ethiopia to rely on the Djibouti route. The railway connection between Djibouti and Addis Ababa has largely been ruled out for oil transportation due to the narrow width rail lines insufficient to accommodate oil tanker rails. Transportation over land is also exposed to risks of sabotage by rebel groups. Plans to build a parallel new railway line that can accommodate oil shipments is in the works, which will alleviate some of the inland tracking challenges.

Fuel import transportation is particularly impacted by the surge of Red Sea and Indian Ocean piracy activity emanating from the crisis in Somalia. The incidence of piracy activity in the Gulf of Aden, compared to global total incidents, has increased from 4.7% in 2000 to 17.2% by 2005, reaching 53.4% in 2009 (see Fig. 64). This alarming increase in piracy activity in sea transportation routes has heightened the cost of fuel delivery due to sharp increases in insurance premiums and elevation of risk to physical disruption. Seizure of oil tankers by Somali pirates have caused fuel supply disruptions in Kenya and Uganda, and threatened deliveries to Red Sea States of Eritrea and Djibouti as piracy threats spread northwards. The geographic distribution of piracy activity is concentrated mainly around the Somali territory around Gulf of Aden. But the piracy risk has gradually shifted as far north as the Eritrean waters in the Red Sea, as far south as the Indian Ocean territories of Mozambique and as far as the Arabian Sea and Gulf of Oman (see Fig. 65).

In essence, the wider geographic distribution of the Somali piracy problem from the Red Sea and the Gulf of Eden to the Indian Ocean, the Arabian Sea and the Gulf of Oman has severely undercut energy security of the Eastern Africa sub-region, emanating from unsafe sea transport routes for imported fuels and rising cost of insuring shipments.

87 0%

20%

40%

60%

80%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Rest of World Somalia/Gulf of Aden Figure 64: Incidence of piracy in the Gulf of Aden: 2000-2009.

Source: IMB-ICC annual reports, 2003-2009.

Figure 65: Geographic distribution of piracy activity in Eastern Africa, 2009.

Source: International Chamber of Commerce, International Maritime Bureau, Piracy Reporting Center.

The economic impacts of piracy is no simple matter either. The One Earth Future Foundation, in its 2011 report on the economic cost of the Somali piracy crisis estimated the cost for 2011 to reach US$US$ 6.6-6.9 billion. Increasing the speed of ships to evade pirates capture costs, in 2011 US$US$ 2.7 billion. Military presence to guard against piracy incurred an estimated US$ 1.3 billion and insurance premiums an added US$US$ 635 million (see Fig.

66). In successful piracy captures, 15% of the cases involved oil takers, which is almost 1 in 9.

The ransoms are equally exorbitant, reaching US$ 160 million in 2011. Carrier extortions ranges, but can reach as high as US$ 13.5 million, which was the case with the Irene SL oil tanker (see Fig. 59).

The total economic cost of the Somali piracy reaches close to US$US$7 billion in 2011, with 635 million insurance premium costs, involving 15% of the oil tankers. Its wide geographic

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coverage, change of involving nearly 1 in 9 oil tankers and the prevalence of attack has driven the Eastern Africa sub-region to greater fuel import cost, undercutting affordability, and posing greater physical disruption risk, meaning from unsafe sea fuel transportation.

Figure 66: The cost allocation of Somali piracy (in million US$US$), the

share of vessels afflicted and sample ransom paid, 2011.

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Source: One Earth Future Foundation. 2011. ‘The Economic Cost of Somali Piracy 2011.

The energy crisis management capacity of a country, beyond the risk factors mentioned, is also determined by the energy security mitigation factors. These include holding emergency stocks, demand restraints and rationing, fuel switching capacity and reserve capacity.