Kenya, Uganda reopen talks on crude oil pipeline

A study by two international oil firms, warning of a possible delay in the completion of an oil pipeline, was at the centre of talks between Presidents Uhuru Kenyatta and Yoweri Museveni at State House, Nairobi, on Monday.

Sources within the Energy sector said that Tullow Oil plc and China National Offshore Oil Company (CNOOC) had carried out research, whose findings warned Uganda against going ahead with its plan to construct the Northern Pipeline from Hoima through Lokichar to the Lamu Port.

It was understood that two firms, working together with French oil company Total, warned that Uganda’s plans to start extracting crude oil for export in 2018 could be delayed if it goes ahead with the Kenya deal.

Monday, President Museveni and his delegation presented the findings of the research to the Kenyan team led by President Kenyatta to justify Kampala’s recent decision to shift its focus to Tanzania, a route, which is much longer than the Kenyan option.

PROTRACTED DISPUTES

Sources said the study warned that Kenya has had a history of protracted land compensations, which would delay the construction of the pipeline from Lokichar to Lamu.

“Uganda’s concern was that research by Tullow and CNOOC suggested that land compensation could be major factor in delaying the construction of the northern pipeline,” said a source who attended the meeting.

The study pointed to the bitter disputes involved in the acquisition of land for the Lamu Port Southern Sudan-Ethiopia Transport (Lapsset) and in the construction of the standard gauge railway (SGR).

This, they warned, could also lead to higher costs because landowners were known to drive the prices high ahead of projects.

In its presentation, Uganda also referred to the findings in the study, indicating that the area along the proposed pipeline route does not have well-developed roads and that this could hinder construction.

The study had also stated that the Lamu Port was yet to be built and warned that it might not be completed by 2018, when Uganda will be ready to start exporting its crude oil.

As an alternative, it proposed that Uganda enter into a deal with Tanzania, whose Tanga Port only requires only a few adjustments and will be ready to start receiving crude oil.

“They said that the Lamu Port needs to be built and this could delay,” said the source.

On Monday, however, Kenya gave Uganda its commitments that the issues of protracted land compensation would not delay the pipeline and cited the SGR, whose construction is on course after land owners were compensated. Kenya also stated that the construction of roads along the Lapsset route was on course.

“We are making commitments knowing that we will keep them. For instance, the Lamu Port will be completed by 2018, which is within Uganda’s oil export projections,”  the Kenyan delegation said.

A source said that Energy Cabinet Secretary Charles Keter told the meeting that land compensation was not the problem.

“We know what to do and its pricing on the Kenyan side will be dealt with,” Mr Keter is said to have told the meeting.

PIPELINE SECURITY

The delegation also assured Uganda that once the construction of the pipeline was completed, the Kenya Government would secure it. The team pointed to the security of the oil pipeline from Mombasa to Eldoret.

“As for terror attacks, adequate steps have been taken and by the way, the threat exists in all the three East African countries,” the Energy CS was quoted to have said.

At the end of the meeting, a  communique signed by Mr Keter and his Ugandan counterpart, Ms Irene Muloni, said there had been “fruitful” discussions on the pipeline project. But Ugandan and Kenyan energy officials made presentations with differing implications on each route.

“The two leaders agreed to meet after two weeks in Kampala to allow their technical officials to harmonies their presentations,” the statement said. The talks will be preceded by a meeting of the two teams established yesterday, which will meet next week to work on the issues in question.

This, the statement said, should focus on a “least-cost option for a regional integrated pipeline”, which will also be determined by the “viability of the Ports of Lamu, Mombasa and Tanga as export options.”

Energy experts must also determine the oil reserves in the two countries and “address the constructability issues along all routes — existing and planned infrastructure, terrain and elevations.”

In February 2014, Uganda signed a deal with Total SA, a subsidiary of the French firm, Tullow and CNOOC on plans for a refinery and an oil pipeline.

AGREEMENT

The Ugandan Energy ministry at the time said the agreement was a guideline on how the oil produced would be used or marketed. But it was also meant to address constant disagreements between the government and the oil companies on the usage of produced oil.

This MoU required the three companies to establish a refinery, but the Ugandan Government was tasked to choose the possible route of the pipeline through neighbouring countries, which would be least costly to the oil firms.

The East African Community member countries were subsequently invited to buy stakes in the proposed refinery, seen then as a future solution to the region having to import expensive oil products.

Kenya and Uganda had also in 2013 reached an MoU to have a pipeline run from Uganda to Lamu with an extension to Juba in South Sudan.

This agreement remained unattended until last year, when the two leaders met in Nairobi for the Northern Corridor Transport Projects talks, where the leaders agreed that the pipeline through