ARUSHA, TANZANIA – The race and direction of the proposed route of the oil pipeline from Uganda to the Indian Ocean took a new turn last week with President Uhuru Kenyatta hosting President Yoweri Museveni in Nairobi for the alternative oil pipeline route.

However, the one day meeting, in which the officials from the main oil companies were invited over the Kenya’s preferred northern route through Lokichar, part of Lamu port, South Sudan, Ethiopia transport (Lappset) project, failed to agree on the route.

They agreed to meet again in Kampala in two weeks while officials try to “harmonize” their views.

Tanzania does not have any oil reserves, but its president, John Magufuli, is keen to win the pipeline, partly because his own country is warming up to develop its own extensive gas reserves. A route through Tanzania would deliver over 15,000 jobs during the construction.

Some Tanzania energy analysts, however, say the Tanzanian route is more stable for the future, given its political stability, and far from the Somalia border which has remained problematic for Kenyan security over the recent years and yet the future is still uncertain with the Somalia struggling to put a working government in place.

An economist based in Arusha, Shadrack Mapalala cited the 2007 Kenya post-election violence during which part of the railway to Uganda was threatened.

Different goal positions between the main oil companies involved in the $4 billion pipeline project — Total of France, Tullow Oil of the UK and China’s Cnooc — over the preferred route – are putting the Uganda government soaked into a business environment that may put the governments of Uganda, Kenya and Tanzania at unease and put the EAC integration entangled momentarily.

The Total company has funds to build a pipeline linking oilfields in landlocked Uganda, however, it is concerned about the Lamu route because of the potential for attacks on the pipeline by Somalia-based al-Shabaab Islamist militants. The France’s oil major expressed its preference for a pipeline transporting crude through Tanzania, based on cost, reliability and safety for the infrastructure.

Total’s Vice President for East Africa, Javier Rielo, met the Tanzanian President John Magufuli – earlier this month – and assured him that the company will begin construction of the crude-oil pipeline project from Uganda to the Tanga port as soon as possible because there is money for the project.

Follow up meetings were held between the ministers of energy and minerals in both Tanzania and Uganda in which Prof. Sospeter Muhongo and his Ugandan counterpart Engineer Irene Muloni exchanged documents related to the joint oil pipeline project in Arusha, which August this year was set as a tentative ground breaking for the oil pipeline project.

This meeting was a follow on the meeting of Presidents John Magufuli and Yoweri Museveni agreement on the Tanzania route.

Tullow, which is developing oil fields in Uganda and Kenya, is strongly advocating a pipeline through Kenyan. “Tullow is clear that the synergies from a joint pipeline means that the lowest cost option remains a route that links Uganda and Kenya’s oil resources,” a spokesman said. The Chinese company, Cnooc has not commented publicly.

Uhuru Kenyatta, Kenya’s president, and his Ugandan counterpart Yoweri Museveni appeared to have been settled in August last year, as the two leaders signed a deal for a pipeline from Uganda’s fields in the Lake Albert basin via Kenya’s oilfields near Lake Turkana, and on to Lamu on the Kenyan coast.

Kenya said at the time that the pipeline would be the foundation for a $23bn infrastructure corridor connecting the two countries, Ethiopia and South Sudan and possibly others. It had signed a memorandum of understanding with the US to help develop it.

But over six months later, after intensive lobbying by Total, Uganda announced it was in discussions with Tanzania, to direct the pipeline through its southern neighbour.

This month an announcement has come from the Tanzanian and Ugandan governments that the pipeline would go via Tanzania to the port of Tanga, and that Total had raised the $4bn needed to finance it.

Uganda, with 1.7bn barrels of recoverable oil reserves and a less developed economy than Kenya, has the most to gain from playing its neighbours off against each other to secure the best possible deal. However, oil industry analysts say it is likely to benefit most from sharing construction and running costs of a pipeline with Kenya.

With 600 million barrels of oil reserves and a much more diversified economy, Kenya has shown less urgency to build the pipeline. But analysts say that if the project does not go via the northern route it is unlikely that the trade corridor — which would benefit Kenya’s coastal region and less developed northern counties — will go ahead.

Source: Business Week

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