The ambitions of the Ugandan government to have its first oil flowing by 2020 may not be possible as the required infrastructure will not be completed by then.
Last week, Standard & Poor’s (S&P Global) released the latest credit rating for Uganda and noted that construction work on the required infrastructure for oil production might only start mid-2018, delaying any earlier than 2020 oil production prospects.
“Although the oil companies involved in the project are expected to make their final investment decisions by the end of 2017, the decision may be delayed until 2018,” S&P said in its rating.
It added: “We understand that the oil-export pipeline will go through Tanzania and the crude oil will be exported from Tanga Port in northern Tanzania. Investments are likely to rise in the second half of 2018.
"Oil production is not expected to start until after 2020.”
The Ugandan government has been insisting that oil will be delivered by 2020 even with the infrastructure gaps and decision-making process in the country.
The oil companies are currently carrying a Front End Engineering Design (FEED) study for the construction of the 1,440-kilometre pipeline.
Another eight FEED studies are also ongoing on in the areas where production licences have been issued as the oil companies wait to make the final investment decision.
In fact, the government is also working on the assumption that the pipeline will be completed in December 2020.
“The Pipeline Project Team has been working on the project implementation process on a regular basis, to ensure fast-tracking of the project implementation process, with a view to commissioning the pipeline by December 2020,” Ms Irene Muloni, the Energy minister, said at the recent signing of the Inter-Governmental Agreement for the East African Crude Oil Pipeline Project between Uganda and Tanzania.
However, the estimates provided by oil companies are that the pipeline could be completed in two to three years from mid-2018.
Despite the sentiment from S&P, Ms Irene Muloni, the Energy minister insists first oil will be delivered by 2020.
The credit rating of Uganda was kept at “B/B” with a stable outlook. Notably, on Uganda’s debt, S&P said once the Karuma Dam and Isimba Dam are completed, there will be a reduced requirement for borrowing.
“Once these projects are completed, the government’s borrowing requirements will reduce and, in our opinion, the increasing availability and efficiency of power generation will spur stronger medium-term GDP growth,” it reads in part.
Reacting to the rating, Mr Emmanuel Tumusiime-Mutebile, the Bank of Uganda Governor said: “The rating by Standard and Poor’s reaffirms sound economic management and good economic prospects in the medium term.
"It is a sign that Uganda continues to command the confidence of the international business community.”