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Economy

Battle of wits hots up as Kenya, Uganda officials resume oil pipeline talks

Kenya, Uganda and Tanzania government officials start a three-day meeting today in Kampala to discuss a technical report on the contentious $4 billion (Sh400 billion) crude oil pipeline route.

The investment potential if landlocked Uganda decides on whether the pipeline transverses northern Kenya to the proposed Lamu port has raised stakes of the meeting.

The report consists details of the three potential routes; the Tanga in Tanzania, backed by a Gulf Interstate Engineering study and the southern and northern Kenya routes, supported by the Toyota Tsusho feasibility study.

The team is expected to reach a conclusion on the most cost-effective route to transport 600 million and 6.5 billion barrels of oil from Kenya and Uganda respectively.

Energy and Petroleum Principal Secretary Andrew Kamau said the outcome of the discussion will be presented at the Northern Corridor Integration Projects (NCIP) summit in Kampala in a fortnight.

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Kenya, Uganda, Rwanda, South Sudan and Ethiopia presidents are keenly following the discussions because the pipeline is considered a key resource within the Northern Corridor projects.

The northern Kenya route starts from Hoima and goes through Lokichar to Lamu. If Uganda opts out of the Kenya route, it will take the Hoima to Tanga one.

Uganda Energy minister Irene Muloni said on phone that their main interest is “a least cost route considering tariffs, terrain, infrastructure and viability of the port of transportation.”

Ugandan officials said Tanzania had waived land fees, transit charges and taxes on the pipeline, but critics argue that such a deal is not economically-viable.

The Kenyan government, however, will charge Uganda Sh1,280 per barrel of oil transported through the Hoima-Lokichar-Lamu route.

If the pipeline passes through northern Kenya, it will be owned by the two governments, Total which owns a majority stake in Uganda oil fields, Tullow Oil and China Offshore National Oil Corporation.

“KPC [Kenya Pipeline Corporation] will come in at the very last stage to manage the crude oil pipeline,” said John Ngumi, the chairman at an interview with Business Daily.

“Kenya is clear that it prefers the northern route through Lamu, for its added advantage presented by the Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor,’’ he said.

Mr Ngumi said that oil-dependant South Sudan could also opt for the Kenyan route, adding that “it will make sense to extend it to serve Ethiopia which lacks a crude oil pipeline.

“This will boost the country’s share of wealth, Juba pays Khartoum $25 (Sh2,500) per barrel in transit fees and Kenya presents a more affordable option through Lamu,” Mr Ngumi said.

Uganda’s decision to pursue the Tanzania route was a surprise to Kenya which had in August 2015 settled on the Hoima-Lokichar-Lamu route with the landlocked neighbour.

But Total does not favour the route citing insecurity linked to Al-Shabaab attacks, banditry and cattle rustling.

In October 2015, Uganda’s Energy ministry signed the agreement with Tanzania Petroleum Development Corporation and Total E&P Uganda.

The October deal proposes a feasibility study that would give way to the construction of a crude oil export pipeline via northern Tanzania to the Indian Ocean port of Tanga.

The move sparked fresh talks between Kenya and Uganda even after Toyota Tsusho set the pipeline completion date at 2020.

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