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Oil & Gas: Uganda’s U-Turn On Regional Oil Pipeline Plan Could Scuttle It

Oil & Gas: Uganda’s U-Turn On Regional Oil Pipeline Plan Could Scuttle It

Uncertainty over the construction of a joint crude oil pipeline and refinery by Kenya, Rwanda, South Sudan and Uganda has deepened after Kampala reaffirmed it was pushing on with talks of building its own pipeline through Tanzania.

Ugandan President Yoweri Museveni said on Tuesday he had held discussions with his Tanzania counterpart John Magufuli on the possibility of building a crude oil pipeline between the two countries.

“We discussed plans to build a 1,120 kilometer oil pipeline between Tanga and Uganda, which is expected to employ 1500 people,” Museveni said while on a work visit to the northern Tanzania town of Arusha.

The declaration by Uganda further darkens the clouds over the joint projects it was to pursue with other regional states under a public-private partnership (PPP) model.        

Although Uganda said in August 2015 it had agreed to the Kenyan route, it changed its stand and said Nairobi had to guarantee security for the pipeline, along with financing and cheaper fees than alternatives.

A month later, Uganda showed its strong resolve to jump ship when it signed an agreement with Tanzania to explore the possibility of building a crude oil pipeline between the two countries.

The Kenyan route raised concerns among some industry players because it would run close to the border with Somalia that is still witnessing violent attacks from Al Qaeda-linked Al Shabaab militant group.

“As a country, we are evaluating the routes with the idea that we have the least-cost route,” Uganda and Tanzania said in a statement following the pact in October. “We would like to ensure that our crude oil has value.”

Landlocked Uganda is keen to get a pipeline to the east African coast to ship its crude reserves, estimated at 6.5 billion barrels, at the least possible cost. The east African country of Uganda discovered crude reserves in its Albertine rift basin near its border with the Democratic Republic of Congo (DRC) in 2006.

“The (agreement) creates a working framework for the potential development of a crude export pipeline from Hoima to Tanga Port of Tanzania,” Uganda’s Ministry of Energy and Mineral Development said in a statement.

Refinery Plan

The agreement was signed between state-run Tanzania Petroleum Development Corp, the Ugandan and Tanzanian energy ministries, and Total E & P Uganda, a unit of France’s Total.

Uganda is also pushing on with plans to construct an oil refinery on its soil.

A Russian consortium led by Rostec subsidiary RT Global Resources together with partners Tatneft and VTB Capital in 2015 won the tender to construct a $3 billion oil refinery in Uganda with capacity for 3 million tons a year.

When completed in 2020, the refinery is expected to have a capacity of 60,000 barrels a day. The facility will be located in the Western part of the country, not far from Lake Albert. The facility will produce gasoline, kerosene, diesel and aviation fuel, as well as liquefied petroleum gas and heavy oil products.

With the plans for a joint the construction of a joint crude oil pipeline and refinery with Rwanda, South Sudan and Uganda faltering, Kenya has since taken on an alternative strategy to tap its oil wealth within the shortest time possible.

Kenya’s alternatives

Kenya is considering moving its crude oil to Mombasa by road and railway as parts of an “early harvest” programme.

The Energy ministry has offered Rift Valley Railways (RVR) the contract to move the oil over a distance of more than 800 km, from Eldoret to the Kipevu-based Kenya Petroleum Refineries  (KPR) from as early as February next year.

The choice of trucks and train is seen as a move to sidestep prolonged haggling with Uganda over the construction of a joint pipeline with Uganda in an effort to beat its tight timelines.

“We are quite ambitious but we know we will be able to pull this off in the next 12-16-month window,” the head of Kenya’s Presidential Delivery Unit Nzioka Waita said in a resent presentation to governors.

“And as we speak, work has been done to improve the road network from Lokichar to Lodwar and from Lodwar to Kapenguria to increase the shoulder size to allow trucks which carry crude oil to convey it to Kitale and subsequently to Eldoret,” Mr Nzioka said in a presentation made during the recent Governors’ Summit in Sagana.

The upgrade of the 213km- road from Lokichar to Kitale has been top of the government’s agenda as it looks to facilitate the quick transport of crude to an export terminal in Mombasa.

Kenya is keen on avoiding the long process of constructing a joint crude oil refinery under discussion with Rwanda, South Sudan and Uganda.

British firm Tullow Oil Plc in partnership with Africa Oil Corporation, have discovered an approximately one billion barrels of crude oil in the South Lokichar basin. Barely three weeks ago had Tullow said an appraisal of the Kenyan discovery confirmed an estimated gross recoverable resource of 600 million barrels of oil.