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Economy

As Uganda chooses Tanzania pipeline route, Kenya to go it alone

Uganda will take its oil to the market through Tanzania’s Tanga port, leaving Kenya to build its own pipeline to Lamu, if the positions taken at the just-ended talks in Kampala are maintained. TEA GRAPHIC
Uganda will take its oil to the market through Tanzania’s Tanga port, leaving Kenya to build its own pipeline to Lamu, if the positions taken at the just-ended talks in Kampala are maintained. TEA GRAPHIC  

Uganda will take its oil to the market through Tanzania’s Tanga port, leaving Kenya to build its own pipeline to Lamu, if the positions taken at the just-ended talks in Kampala are maintained.

“We have lost the pipeline deal to Tanzania. The only deal is to go back to the drawing board to construct our own pipeline to Lamu port,” a senior Kenyan official told The EastAfrican on Friday.

The outcome of the talks was closely guarded, with the technocrats meeting in Kampala insisting that the final position would be announced during the Northern Corridor Heads of State Summit next week.

The EastAfrican, however, learned that Uganda may have already sealed a deal with Tanzania to take the Tanga route and to let oil firm Total E&P of France fund and operate the pipeline.

Last week in Kampala, Uganda held two separate meetings with Kenya and Tanzania; each consultation came up with a report. It had been agreed that the technical teams would compile the two reports and hand over a joint report to the heads of State.

However, the Ugandan team is said to have been reluctant to share the report of its consultations with Tanzania.

“Uganda is playing hardball and has refused to share the report from its discussions with Tanzania. This then leaves us nowhere,” said one of the Kenyans close to the discussions.

However, it has also emerged that the Kenyan officials participating in the Kampala talks may not have had all their facts right as they tried to address the concerns raised by Uganda over the northern route for the pipeline.

For example, Uganda had raised concerns over the location of the pipeline terminal at Lamu port — a spot that they feared was prone to Monsoon winds — as well as the financing for the pipeline.

Another source at the meeting told The EastAfrican that, although Kenya had indicated that the site at Lamu had been moved to the main port, this was not the position when teams from Uganda and Kenya toured the area recently.

“On financing, Kenya was not clear on how to finance the pipeline even though it indicated that many organisations were willing to provide funds. Uganda felt this could take long and result in delays in the export of the oil,” he said.

Meanwhile, Total reaffirmed its commitment to construct the $4 billion crude oil pipeline to Tanga.

Total is eyeing production of an estimated 6.5 billion barrels of Uganda’s crude oil by 2018.

The French oil company is UK Tullow Oil’s partner in the Ugandan oil fields and the main financier of the operations. China National Offshore Oil Companies is also a partner.

Kenya’s apparent resignation and decision to go it alone is in line with President Uhuru Kenyatta’s recent remarks that the Lamu Port – Southern Sudan – Ethiopia Transport (Lapsset) Corridor must and would proceed, even without Uganda.

“The Lapsset project will move forward whether or not Uganda opts to have its oil pass through Kenya’s Northern Corridor,” said President Kenyatta.

Heads of State summit

The Kenyan president and his Ugandan and Rwandan counterparts, Presidents Yoweri Museveni and Paul Kagame, are expected to meet on April 22 for the Northern Corridor Infrastructure Summit where the pipeline will be a key agenda item.

“Tanzania will also attend the Summit for the pipeline discussions,” said Andrew Kamau, Kenya’s principal secretary, department of petroleum, at Ministry of Energy and Petroleum.

“We expect that a harmonised report compiled by Uganda from the two meetings will be tabled for the presidents to make a decision,” Mr Kamau had earlier told The EastAfrican, adding that the outcome of the report and decision by the presidents on the pipeline would determine the next step Kenya would take on the issue.

Total has also promised to finance Uganda’s contribution of 40 per cent to the construction of the refinery in Hoima, which stands at $3.8 billion.

“Uganda is struggling to raise the funds. Total has warned Uganda that the northern route, which is 1,120km, will encounter rough land terrain because of the Rift Valley in Kenya, driving the cost of the pipeline higher and delaying it. Tanzania is flat, given the Lake Victoria Basin,” said the source.

“Total also warns that the port of Lamu has not been built and the entire Lapsset project is behind schedule. It is practically impossible for Kenya to complete construction of the port by 2018. The port of Tanga has already been built.”

Tullow’s group head of communications George Cazenove said the decision around a regional pipeline was a government-to-government issue and his company would work with whichever route the East African countries choose.

Prior to the Kampala meetings, Kenya and Ugandan officials had conducted tours to Lamu, Mombasa and Tanga ports.

According to Mr Kamau, it was established that although all the ports are sheltered, Tanga was shallow and would require extensive work of dredging, which would increase the project cost and delay potential oil export.

In addition, a load-out facility will be required at least 2.3km offshore, which is complex and expensive to build. 

This is unlike the Lamu port that would require a dredge channel that is less than 300m, has pre–allocated land in Lamu industrial area for marine storage, and the port is designed to handle construction material and large maritime cargo.

The 1544km Hoima to Tanga route being favoured by Total of France will cost $5.5 billion, while a joint one with Kenya through the southern route will cost $4.4 billion: The Tullow Oil of the UK preferred northern route will cost $4.2 billion.

Kenya’s loss
Over about 25 years of standalone pipeline, Kenya is projected to lose $3.32 billion, and Uganda the $3.32 billion in revenue collection for not constructing the joint pipeline.

A joint pipeline between Kenya and Uganda would have had an initial throughput of 300,000 barrels per day (200,000 barrels for Uganda and 100,000 barrels for Kenya). This could have earned the pipeline companies $1.66 billion a year, which would be shared between the countries according to throughput.

“A regional pipeline offers greatest synergy and lowest tariff for both Kenya and Uganda,” said Mr Kamau.

If the two countries go for a standalone pipeline, Uganda will lose $300 million every year due to an increase of $4.07 in tariff per barrel, and Kenya will lose $250 million per year due to the increased tariff of $6.96 per barrel.

Kenya and Uganda had until late last year agreed to construct a pipeline from Hoima to Lokichar and to Lamu. But fears of insecurity in the region bordering Somalia and huge compensation costs for privately owned land, saw Uganda explore the option of the southern route through Tanzania to Tanga.

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