Uganda, Tanzania edge closer to constructing oil pipeline

30Jan 2019
The Guardian Reporter
Financial Times
Uganda, Tanzania edge closer to constructing oil pipeline

IN an intergovernmental ministerial committee meeting held last week, the governments of Uganda and Tanzania agreed to sign the Host Government Agreement (HGA) for the East Africa crude oil pipeline by the end of June this year,

following prolonged and ongoing negotiations between ministers from both countries.

The HGA will detail the rights and obligations of each party ― which include Uganda, Tanzania, and joint venture partners, Cnooc, Total E&P, and Tullow Oil.

The HGA is also a precursor to other key agreements, such as shareholders and transportation that will be negotiated with joint venture partners before reaching a final investment by the end of the year.

The meeting did not address issues of revenue sharing, taxation, or local content policy for jobs to be created by the pipeline.

The 1,400-kilometre pipeline is projected to take 36 months to construct following the signing of the HGA, during which 5,000 to 10,000 direct and indirect jobs are expected to be created.

The crude oil pipeline will extend from Hoima, Uganda to the port of Tanga, Tanzania on the Indian Ocean.

With an overall projected cost of $3.5 billion, only 20 per cent of the pipeline’s total length will be in Uganda, and this portion is expected to cost $700 million.

This means that that the bulk of the pipeline (80 per cent) will be in Tanzania, thus likely to give a big boost to the country's economy.

Uganda and Tanzania are expected to fund between 30 to 45 per cent of capital expense through their respective national oil companies, Uganda National Oil Company and the Tanzania Petroleum Development Corporation (TPDC).

Landlocked Uganda announced in April 2016 its decision to build the major pipeline to export its oil through Tanzania, despite intense lobbying for the project by Kenya.

Uganda had initially planned to send the pipeline through Kenya, which wanted a joint facility for oil from its own fields that are under development.

But the pipeline was instead routed further south through Tanzania, with concerns about possible attacks by Somalia's al-Shabab terrorists in Kenya said to be a factor.

The group has attacked targets in Kenya close to where the pipeline would have passed.

The discovered oil reserves in Uganda are estimated at some 6.5 billion barrels, and the country expects to start production in the next few years.

Kenya, which has also struck oil, had aggressively pushed for the pipeline to pass through its territory.

Uganda had initially signed such a deal with Kenya, but Total later questioned the plan over security concerns.

Ugandan government officials said that the cost was also a factor in choosing Tanzania for the massive project.

Reports also suggest that Uganda backed the Tanzanian route because Tanga port is already fully operational, while Kenya's Lamu port is still being built.

When completed, it will be East Africa's first major oil pipeline.

Meanwhile, Kenya said it would build its own pipeline from Lokichar, in the north-east, to Lamu after missing on the Ugandan pipeline deal.