Kenya’s interests must prevail in Uganda oil pipeline debacle

The Uganda-Kenya pipeline, whose future now hangs in the balance, is the modern equivalent of the “Lunatic Express,” a term fittingly used to describe the Kenya-Uganda Railway, constructed in 1896-1901.

Kenya may never have been the original target of the railway but, as a legacy of the project, Kenyans like imagining themselves as the “gateway” to East Africa and a pivotal state in the region.

But as President Uhuru Kenyatta gears up to deliver his fourth State of the Nation Address on March 31, Kenya’s regional status and interests are in a state of flux.

The discovery of large reserves of oil and gas in the East African region is becoming a double-edged sword for Kenya. With the discovery of crude oil in the Lokichar basin in 2012, East Africa’s largest economy enters the world’s oil-producing states.

However, the politics of how to transport East Africa’s oil to the international market is challenging Kenya’s interests and influence and emphatically changing its fortunes in regional geopolitics.

Kenya’s top diplomats like saying that their country’s destiny is inextricably linked to that of its East African neighbours. But the diplomatic tiff over the proposed Uganda-Kenya Crude Oil Pipeline (UKCOP) is testing this belief to the core.

Until recently, the plan to build a pipeline to transport crude oil from Uganda’s oil fields near the town of Hoima to the Kenyan port of Lamu appeared to be a done deal. In June 2014, Kenya, Rwanda and Uganda agreed in principle to construct the pipeline.

The pipeline was a flagship project of an informal “Coalition of the Willing”, the three of the East African Community (EAC) member states cobbled together two years ago in the wake of Tanzania’s lukewarm response to regional infrastructural projects.

But a recent deal with Tanzania to transport Uganda’s crude oil through the Port of Tanga has sounded the death knell for the “Coalition of the Willing” and casts a dark shadow over the future of the Hoima-Lamu pipeline.

Kenya was taken aback by the new Uganda-Tanzania deal, which came like a jolt from the blue.

A week before the meeting between President Uhuru Kenyatta and Yoweri Museveni in March 2016, the Presidents of Tanzania and Uganda jointly announced plans to build a competing Uganda-Tanzania Crude Oil Pipeline (UTCOP), a 1,401 km line from Hoima to Tanga on Tanzania’s Indian Ocean.

Museveni and John Magufuli shook hands on the deal. A follow-up meeting of top officials of the Ugandan Ministry of Energy and their counterparts in Tanzania’s Petroleum Development Corporation tackled the issue of funding, transport tariff, and how to speed up the construction plans. The Hoima-Tanga pipeline begins in August 2016 to be completed in two years.

Uganda is clearly playing on its new fabulous wealth in oil to bolster its influence and assert its interests in the region. The country’s proven crude oil reserves estimated at 6.5 billion barrels — of which 1.4 billion barrels are recoverable — is the fourth largest oil in sub-Saharan Africa, after Nigeria, Angola and South Sudan.

Uganda’s approach to its new oil wealth is deeply strategic and nuanced. It is building its first-ever oil refinery, the Uganda Oil Refinery, at Hoima and constructing the Hoima-Kampala Petroleum Products Pipeline, an approximately 210 km pipeline, to pipe refined crude oil products — jet fuel, gasoline, kerosene, and diesel fuel — for use in its domestic needs and those of its regional neighbours. The rest of the crude oil product will be exported via a pipeline to the Indian Ocean, now at issue.

Kenya should read the writing on the wall. Ugandan officials are praising Tanzania’s President John Magufuli as a man who likes to get things done.

There is an ideological factor in play, too. Museveni has strong historical ties with Tanzania, his home of exile where he studied and launched the rebellion that propelled him to power in Uganda in 1986.

FUELING ECONOMIC RIVALRY

But Uganda should also communicate its decision to Kenya quickly. Failure to do so risks fuelling a long-standing ideological and economic rivalry with Kenya.
This week, diplomatic relations with Kenya plunged when Tanzanian authorities confiscated the passports of senior Kenya Government officials and denied them entry to Tanga, but allowed their Ugandan counterparts to enter.

The oil debacle is also drawing in multinational oil corporations involved in East Africa’s nascent oil industry who have also been sucked into the crisis.

One of these is the French conglomerate, Total. From the outset, Total has been a vocal opponent of the Kenyan pipeline citing insecurity and costs.

It argues that the Lamu route runs through a region near the border with Somalia, exposing the pipeline to potential terrorist attacks from Al-Shabaab militants.

It also cites the cost of heating and piping the crude for a distance of 1,500 km compared to Tanzania’s 1,401 km.

However, whether Uganda opts for the Hoima-Lamu or Hoima-Tanga routes, the Uganda oil — which is waxy and remains solid at 40°C — demands the building of the longest heated crude oil pipeline in the world.

Total is resorting to the usual “authoritarian stability” argument that fragile democracies like Kenya cannot be relied upon to protect investments, especially in the fringes of the country. You need “regime stability” which is guaranteed by authoritarian governments.

The regime stability argument seems to have swayed Uganda, which considers Tanzania a more stable alternative to Kenya, especially in the run-up to the coming 2017 elections.

On the other extreme, the British oil company, Tullow Oil, supports the Hoima-Lamu route largely because it has been involved in developing oil resources in Uganda and Kenya. Tullow argues that Hoima-Lamu route makes more “commercial” sense, but sees “politics” as getting in the way.

Perhaps the most decisive company is the China National Offshore Oil Corporation (CNOOP), which is currently the only oil company with a production licence in Uganda. Up to this point, the company is silent on the debate.

The Hoima-Lamu pipeline is a key plank of the Northern Corridor Infrastructure Project. Its collapse will be a major blow to Kenya.

The pipeline debate should be a lesson to Kenya to return to interest-driven diplomacy in the region.

Prof Kagwanja is Chief Executive, Africa Policy Institute