Lamu or Tanga? Intriguing tale of two pipelines

The President Yoweri Kaguta Museveni with Tanzanian President John Pombe Magufuli shortly after the bilateral meeting at the Arusha state lodge in Tanzania on Tuesday 30th February 2016. NATION MEDIA GROUP

What you need to know:

  • Uganda gave Kenya conditions on financing, security guarantees, hastening construction and transportation tariffs. Kenya was to ensure that these conditions, said to have been pushed by Total, are met before actual construction started.
  • A feasibility study by Toyota Tsusho, contracted by Kenya, South Sudan, Rwanda and Uganda on the crude oil pipeline route indicated that the northern route is the most economical.
  • A statement by Tanzania’s presidential press unit last week stated that President John Pombe Magufuli met Museveni, and agreed that the pipeline will pass through Tanga.

Kenya and Uganda were about to announce that a $4 billion crude oil pipeline would take the Northern route through Lamu when things took a sudden turn.

President Yoweri Museveni met Jabier Rielo, Total E&P vice president for Eastern Africa in Uganda’s state house in July 2015, and talks on a completely different pipeline passing through Tanzania’s Tanga were initiated.

Officials in Uganda’s ministry of Energy and Mineral Development said Mr Rielo was acting on a tip that President Uhuru Kenyatta planned to meet Museveni, with the view of sealing the Lamu crude oil pipeline deal. Still the two Presidents met in Uganda and announced on August 10, last year that the pipeline would pass through Albertine to Lokichar in Turkana County.

Uganda gave Kenya conditions on financing, security guarantees, hastening construction and transportation tariffs. Kenya was to ensure that these conditions, said to have been pushed by Total, are met before actual construction started.

“It is this meeting with Total that brought a rift between Kenya and Uganda, even as crude oil pipeline discussions went on,” said a senior official from Uganda’s Ministry of Energy and Mineral Development who sought anonymity citing sensitivity of the negotiations.

After Ugandan talks, Mr Rielo then moved to Dar es Salaam and met the then Tanzanian President Jakaya Kikwete on August 22, last year. This meeting gave impetus to the idea of building the Tanga pipeline.

Aside from Total’s interest in the security of the pipeline, the firm is said to have exploration interests around Lake Eyasi, North Tanzania.

Mr Rielo in late 2014 met Tanzania’s Energy and Minerals Minister Sospeter Muhongo to initiate participation in the licensing round.

The result of the recent Dar meeting was a memorandum of understanding between Tanzania and Uganda on October 12, last year. The MoU proposed a study that would give way for construction of a crude oil export pipeline.

Present during the signing ceremony in Kampala, were officials from Tanzania Petroleum Development Corporation, Uganda’s ministry of energy and Total E&P Uganda.

The team was convinced that this would be the best option for exportation of Uganda’s 6.5 billion barrels of crude oil from Hoima via northern Tanzania to the Indian Ocean port of Tanga.

About six months after Kenya and Uganda settled on the deal, it did not come as a surprise that Tanzania and Uganda agreed on a pipeline through Tanga.

AGREED

A statement by Tanzania’s presidential press unit last week stated that President John Pombe Magufuli met Museveni, and agreed that the pipeline will pass through Tanga.

“The two agreed to begin construction of the crude oil pipeline from Tanga to Uganda, for the benefit of the two countries and their East African counterparts,” said Director of State House Communication in Tanzania Gerson Msigwa on Tuesday. “The pipeline will have a length of 1, 120 km and the project will create employment to over 15, 000 people.”

Ugandan and Kenyan officials working on the pipeline negotiations have since dismissed the current deal (Uganda-Tanga route) on the pipeline, arguing that Tanzania is not a member of the Northern Corridor Integration Projects summit (NCIP) hence the project cannot take the Tanga route.

“The talks are developing, and as you know they are being conducted through the NCIP. Our interest is that the route goes through Northern Kenya,” said a Ugandan official privy to the talks.

“You must take note that no study has been conducted yet on the Tanga route, by April or end of March, we will report the progress on the crude oil pipeline talks.”

While Kenya’s Energy Cabinet Secretary Charles Keter kept mum on the project’s developments, his Ugandan counterpart Irene Muloni who is reported to have frequently travelled to Kenya for the pipeline talks appeared careful not to take sides.

“Hopefully before the end of the month we will disclose to you the pipeline discussions for the Tanga route as well as negotiations in Kenya,” said Mr Muloni in a phone conversation last week.

“Just wait, at the moment, we cannot disclose anything.”

He spoke a few days after a statement from Uganda’s State House had confirmed the deepening relations with Tanzania on the crude oil pipeline. This was further affirmed by President Magufuli’s announcement on the move to explore the Tanga route, which would create thousands of jobs.

Senior official at the Ministry of Energy and Mineral Development in Uganda said Total CEO Patrick Pouyanne visited Mr Museveni in December prior to the elections.

“During the visit, Total insisted that it will produce Uganda’s oil despite falling crude oil prices, but through the port of Tanga,” said the Uganda energy official.

It is however strange that Uganda is bowing to pressure by Total, which is one of the investors together with Tullow Oil Uganda and China National Offshore Oil Company (CNOOC) in Uganda’s upstream sector.

Tullow Oil, also an investor in Kenya’s oil exploration, sides with Kenya on the northern route where they have discovered 600 million barrels of oil and have further prospects of getting over a billion barrels if exploration activities continue.

The route through Lamu is the best option for Kenya and Tullow since it makes economic sense and passes through Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor, which will provide the offloading port for East African oil.

ECONOMICAL

A feasibility study by Toyota Tsusho, contracted by Kenya, South Sudan, Rwanda and Uganda on the crude oil pipeline route indicated that the northern route is the most economical.

The study states that the route through Lamu would cost $4.7 billion while the southern route via Tanga would cost $5.26 billion. The cost of moving oil across the two routes will however vary by an estimated $2 dollars a barrel only, with the Tanga route experiencing higher costs because of its length.

Toyota Tsusho further states that the Northern route is shorter at 1,500km, the Southern route is 1,545km. The route via Tanga could also be longer to Uganda. The port is at the Indian Ocean, more than 340 Km north of Dar es Salaam. Its capacity to offload cargo has been constrained and it’s currently set for an upgrade to accommodate more cargo.

The concern about the cost of transporting oil per barrel is genuine because the proceeds will be used to offset the total cost of the pipeline. A cheaper pipeline would therefore be valuable to both Kenya and Uganda.

Even as the negotiations on the crude oil seem to be shaky, Kenya in January initiated discussions among top officials in energy, to begin exploring ways of transporting crude oil by rail and tracks beginning September.

President Kenyatta is treating the rail and road transport plan to export oil as a short-term measure awaiting the final solution, which is the construction hat could see the crude oil pipeline. Observers have viewed the rush to have the oil transported by road and rail as a negotiating tactic that will see Uganda budge on its final pipeline route decision.

On the other hand, it is also seen as a rush to have the deal sealed ahead of the 2017 general elections in Kenya. The successful commencement of the project would give more clout to President Kenyatta during the polls.

UK’s Tullow Oil Plc in its latest report states that it will make its final investment plan for both Uganda and Kenya in 2017. The firm in an operational update released in January, said it submitted the field development plan to the government in December, discussions on production is ongoing.

Key dates

  • July 2015: President Yoweri Museveni met Jabier Rielo, Total E&P vice president for Eastern Africa in Uganda’s State House and talks for a completely different pipeline passing through Tanzania’s Tanga was initiated.

  • August 10, 2015: Presidents Uhuru Kenyatta and Yoweri Museveni met in Uganda and announced that the pipeline would pass through Albertine to Lokichar in Turkana County.

  • August 22, 2015: After Ugandan talks, Mr Rielo then moved on to Dar es Salaam and met the then Tanzanian President Jakaya Kikwete . This meeting gave impetus to the idea of building the Tanga pipeline.

  • October 12, 2015: A memorandum of understanding between Tanzania and Uganda was signed as the result of the recent Dar meeting. The MoU proposed a study that would give way for construction of a crude oil export pipeline.

  • A statement by Tanzania’s presidential press unit last week stated that President John Pombe Magufuli met Museveni, and agreed that the pipeline will pass through Tanga.