Pipeline Extension Offers Numerous Upsides


The development of C ô te d'Ivoire's hydrocarbon infrastructure looks set to continue, with Chinese interest in building the next section of a pipeline from Abidjan to Burkina Faso reported just weeks after the first section of the pipeline was inaugurated by President Alassane Ouattara . Currently, the 300km multi-product pipeline runs from the capital's oil refinery to the central city of Yamoussoukro . Chinese National Petroleum Corporation (CNPC) is reportedly seeking the contract to build the next stretch of pipeline, e xtending the network to the cities of Bouaké and Ferkessédougou and then on to the Burkinabe capital of Ouagadougou .

Should the pipeline be built, which the Chinese say they have the financial muscle to see happen, the new pipeline will be advantageous for C ô t e d'Ivoire in a number of ways. Currently, fuel depots in Bouaké and Yamoussoukro and all export partners are supplied via road and rail, which as the demand for fuel has increased has placed increasing pressure on the country's already dilapidated and underdeveloped transport infrastru ct u re. The new pipeline, capable of carrying 25,000 b/d of refined petroleum products, should significantly reduce pressure on the road system allowing the government to fix or upgrade the roads. It is hoped that tax revenues from the liquids travelling through the pipeline will net XOF20bn(US$40mn) annually.

Pipeline To Boost Exports
Cote d'Ivoire Oil Production, Consumption & Net Exports ('000b/d)

The increased tax and export revenues resulting from a pipeline northwards would go some way in addressing a widening budget deficit, which is BMI's Country Risk team's long-term view for the Ivorian economy. Roaring economic growth in Côte d'Ivoire will cause domestic revenues to rise rapidly after stagnating for almost a decade. BMI predicts that real GDP growth in Côte d'Ivoire will average 8.1% between 2013 and 2017 on the back of surging foreign investment, reforms to the crucial cocoa sector, and the expansion of new industries such as oil. Combined with a substantial development grant from France, BMI predicts that government revenue will increase by 25.4% in 2013 - much of which will be invested in infrastructure in an attempt to meet government goals on raising living standards.

Pro-Spend Government Bodes Well For Infrastructure
Côte d'Ivoire, Distribution of Government Spending, % (LHS) & Capital Spending, Share of Expenditure, % (RHS)

Although already a net exporter of electricity, a good proportion of the government's capital expenditure is to be invested into the power sector , which should yield a good number of opportunities in the infrastructure industry . Unlike many countries in Sub-Saharan Africa (SSA), C ô te d'Ivoire has a reliable power supply and has long been a net exporter of electricity, with client-countries connected to the grid including Benin, Togo, Burkina Faso and Ghana. In spite of this, t he revenues from the new pipeline will likely go towards the government 's aims of invest ing US$500mn in power plants in an effort to add 150MW per year in new c apacity.

We forecast that the number of power projects in the pipeline will help Cote d'Ivoire's construction sector rebound strongly in 2013, at 13.6% year-on-year real growth ( see Power Projects Bolster Strong Growth Outlook, January 14 ). We also highlight that the government is seeking additional funds to bring new thermal and hydropower capacity online ( see 'China's Exim To Support Power Expansion', October 16 2012 ), as well as new transmission and distribution infrastructure, in order to support the country's growing mining and agricultural processing industries.

The extension of the pipeline will also boost C ô te d'Ivoire's nascent oil sector. Whilst r ecent exploration results have been promising, with numerous majors reporting discoveries, the lack of infrastructure means that the majority of crude is exported. According to the EIA, in 2012 Cote d'Ivoire had the cap acity to refine 64,000b/d, yet produce d much lower levels of refined products . Better transportation options to the domestic an d regional markets could see refining operations increase substantially.

China To Repeat Its Tactics

China has been increasingly searching for new sources of oil in Africa. As private investment into Africa's downstream segment has been relatively weak owing to the region's limited market connectivity, we expect that the Ivorian government to be receptive to CNPC's offer the build the extended pipeline. Although there is growth potential in the region, for private investors the market is segmented. Individual markets are small and are not well-connected to other markets to justify downstream investment - particularly large-scale operations that could provide economies of scale - most of the time. Poor business environments and inefficient price regulations serve to further weaken interest. Thus, as we have seen across the continent, China is likely to increase its role in the development of infrastructure in Côte d'Ivoire.

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