Kenya to construct its pipeline as Uganda deal fails

Despite Uganda leaving out Kenya in the pipeline project by opting for the Tanzania route, Energy Cabinet Secretary Charles Keter now says Kenya will construct its pipeline transporting 600 million barrels of crude oil from the Lake Turkana Basin to Lamu for export.

However, a map by the Kenyan technical teams involved in the oil discussions states that Kenya would incur more costs of Sh1418.90 as tariff while transporting oil per barrel.

This is because of the low volume of oil being transported from Lokichar to Lamu.

If it could have shared the pipeline with Uganda through the northern route, Kenya could have incurred Sh713.50 as tariff for transporting oil per barrel while the former could incur Sh1272.96.

Petroleum Principal Secretary Andrew Kamau affirmed that Kenya remains with only two years’ work on the pipeline and this could be hastened considering the availability of funds.

He said that China Exhim Bank, AfDB and IMF have shown huge interests in funding the crude oil pipeline.

Through a 2012 Memorandum of Understanding (MoU) with Kenya, South Sudan will eventually connect to the pipeline to use Lamu as its export point.

Ethiopia could also later use Lamu port as its export point for crude oil.

“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 Smart Company early this month.

Kenya has all along preferred the northern route through Lamu, for its added advantage presented by the Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor.

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.

WHY TANGA ROUTE?

Uganda had settled on constructing its pipeline through the Tanga route.

A report prepared by Ugandan technocrats led by Ernest Rubondo, commissioner for petroleum exploration and production, was used to argue the country’s case at the summit.

“GOU firmly concludes that Kabaale-Tanga (Tanzania) route is the least cost route for the transportation of crude oil from the region to the East African coast,” the report says.

The conclusion was based on analysis of all routes involved, studies and due diligence.

“The Kabaale-Tanga route is the only option to secure first oil export by mid-2020, with pipeline availability of 99 per cent,” the report concludes.

Ugandan officials also argued that 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, was to charge Uganda Sh1,280 per barrel of oil transported through the Hoima-Lokichar-Lamu route.

A final communique by Presidents Uhuru Kenyatta, Yoweri Museveni (Uganda), Paul Kagame (Rwanda) and Slava Kiir (South Sudan), agreed that, “two crude oil pipelines, one from Lokichar to Lamu and another from Hoima to Tanga will be developed by Kenya and Uganda respectively.”

Total, Uganda’s main oil investor, was the key influence in Museveni’s position by using its financial muscle to obtain its interests of having all its resources in Tanzania.

Total has throughout the talks argued that insecurity was a major hindrance of constructing the pipeline through Lamu Port.

STILL ON COURSE

Last month, President Kenyatta invited Museveni to State House with the hopes of reviving talks on the pipeline after they had stalled since October last year.

The two, with their energy teams began a fresh process looking at the technical aspects of the Tanga as well as Kenya northern and southern route.

It, however, came as a surprise this month when Uganda presented its own report as the two teams met ahead of the NCIP heads of states summit.

On Thursday last week for instance, Kenya and Uganda delegations were locked up in make or break talks even though reports were rife that Uganda had made up its mind.

President Kenyatta went to the summit with his mind set on going it alone through the northern route to Lamu.

Kenya’s plan to come out smelling roses on the deal were seen with attempt by the presidential press unit to mask the fallout by issuing a statement saying that the decision to go it alone was done by Nairobi.

“The decision comes after Kenya abandoned negotiations with Uganda for a single pipeline project, because the talks dragged on for long and had paralysed preparations for the construction of Kenya’s oil pipeline,” the statement read.

The proposed refinery is expected to come on steam by 2018; it is expected to process an estimated 60,000 barrels of oil per day.

Despite Uganda's decision to abandon Kenya, Petroleum Principal Secretary Andrew Kamau has further said Nairobi's economic ambitions remain unshaken for it will still have its 2.5 per cent stake in Uganda’s Greenfield refinery.

An upfront fee of Sh1.3 billion ($13 million) will first be put in as it assesses the commercial viability of the refinery.

“Our shareholding in the refinery is negligible, we have no need to do away with it, we will retain it in the spirit of integration,” said Mr Kamau.

The refinery is financed in a public private partnership (PPP) arrangement with government in a 60:40 equity ratio.

THE PLAN

East African countries are required to buy stakes in the project to facilitate its financing.

At the 13th NCIP summit, Tanzania, an observer at the summit, committed to take up 8 per cent stake in the refinery.

Officials following the talks stated that the move was designed to increase its chances of securing the crude oil pipeline over its rival Kenya.

“The summit welcomed the decision by United Republic of Tanzania to invest in the shareholding of the Uganda oil refinery project,” states the final heads of states communique after the summit.

Uganda intends to construct the refinery to process its crude oil estimated at 6.5 billion barrels, which border the Democratic Republic of Congo.

A consortium led by Russia’s RT Global Resources won the tender to build and operate the crude oil refinery but is still carrying out a study to ascertain the quality of crude and when construction could begin.

Kenya’s National Treasury Cabinet Secretary Henry Rotich last year said that, “we are not likely to take up more stakes at Uganda’s refinery, why should we take more shares in the refinery?” Mr Rotich asked.

“They have not even started the construction. We have other strategic interests.”

WAY FORWARD

Additionally, Mr Kamau said Kenya will now move right ahead with its plans to conduct the Front End Engineering Design (FEED) that will give finer details on the pipeline route and timelines of construction.

“We will then conduct an environmental assessment study, we are very far ahead in our plans, we are not affected at all by Uganda’s withdrawal from the shared pipeline," said Mr Kamau, adding “We have also conducted scoping and will now move forward with plans mooted in 2012 that will see South Sudan connect to our pipeline.”

Tullow, Kenya’s major oil explorer is pleased that a decision has finally been reached on the pipeline route.

The firm, in a statement, said “the decision around a regional crude oil pipeline was a government-to-government decision and we are pleased that a decision has been made.”

“While we have always believed that a joint Uganda-Kenya export pipeline was the most cost-effective option, we are clear that both Uganda and Kenya’s oil resources can be developed separately,” said Tullow Country Manager, Martin Mbogo,

“We will now work with both the Government of Uganda and the Government of Kenya and our JV partners in both countries on moving these exciting projects towards development,” he added.

Since the African Union recognizes Lapsset as a continental project, and the pipeline is its major component, it is required to move forward with speed.

The New Partnership for Africa’s Development (Nepad) secretariat monitors the project following the admission of President Kenyatta to Africa’s Presidential Infrastructure Champion Initiative last year.

Lapsset is among 16 flagship continental infrastructure projects that have a priority for joint funds mobilisation.

“Lapsset is the single largest project of its nature in the East African region and once completed it will significantly boost the economic growth of not only Kenya but also the region in general,” said Mr Kenyatta in a statement last year.

FUTURE COMMITMENTS
Northern Corridor Integration Summit came into being in 2013 following a meeting by Presidents, Museveni, Kagame and Kenyatta with the aim of speeding up implementation of regional projects through cooperation.

Under the NCIP, Kenya is coordinating projects that include power generation, transmission and interconnectivity, crude oil pipeline, commodities exchange, human resource capacity building and land.

The project cluster coordinated by Uganda includes the Standard Gauge Railway, Information Communication, oil refinery, political federation and financing.

Rwanda coordinates immigration, tourism, trade, labour and services, single customs territory, mutual defence cooperation, mutual peace and security cooperation and airspace management.

The fate of the NCIP now seems shaky as a division appears among member countries on shared projects.

A cabinet secretary last month casted doubt on the commitment of Uganda on another of the Summit project- the multibillion standard railway.

"We will build a port in Kisumu where the SGR will terminate in case (God forbid) Uganda doesn’t do its part. The Kisumu port will supplement Mombasa port," said Transport Cabinet Secretary James Macharia.

On its part Rwanda is in talk with Tanzania to do a similar project- leaving Kenya in the cold.

The SGR was one of the northern corridor transit route starting from Mombasa to Congo through Uganda and Rwanda, and eventually to the Atlantic Ocean through Cameroon.

Rwanda, Tanzania and Burundi through the Rwanda Transport Development Agency (RTDA), have already prequalified eight firms to bid for the construction of the standard gauge railway.

“I cannot name the firms that have been prequalified. But about 60 per cent are from China,” said Imbuchi Onyango, a technical expert on railways at the East African Community Secretariat last month.