Uganda, Tanzania oil pipeline deal unlocks more funding options

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The pipeline that will take crude oil from Uganda to export markets has moved closer to financial closure after the waiver of taxes on the product by Tanzania paved the way for the signing of a bilateral agreement between the two countries.

Ministers from the two countries signed an agreement on May 26, itself a formality since Presidents Yoweri Museveni and John Magufuli had thrashed out the contentious issues a week earlier during the EAC Heads of State Summit in Dar es Salaam.

The accord frees financiers led by Total to start firming up funding options for the pipeline, especially because the tax waiver makes the oil more competitive and the project more bankable.

“It will unlock East Africa’s oil potential by attracting investors and companies to explore the potential in the region,” said Total’s General Manager Adewale Fayemi.

He added the pipeline would increase foreign direct investment in the two countries by 60 per cent.

Design report

Details of the financing, however, are not expected until August this year when Gulf Interstate Engineering, a consultant, gives a report on the specifications and costs of the pipeline from its Front End Engineering Design study.

The contract was awarded in December 2016, under a determination to have pipeline related activities run concurrently with a 2020 target for getting the crude to markets. The FEED will enable Uganda and Tanzania approach financiers.

The pipeline concept paper targets a mix of debt and equity with the former ranging between 60 and 70 per cent.

Initial estimates put the cost of the 1,445km East African Crude Oil Pipeline at $3.55 billion, meaning the two countries could borrow up to $2.5 billion.

The 24-inch diameter will move 216,000 barrels of oil per day at a cost of $12.2 per barrel. This will save Uganda $3.7 per barrel from the tariff had the pipeline had passed through Kenya.

Break-even point

After Uganda opted for the Tanzania option, Kenya will construct a $2.1 billion pipeline covering 855km from South Lokichar in Turkana to Lamu on the coast. The tariff along the section will be $14 per barrel, largely because of land compensation costs and the government’s reluctance to waive taxes.

A shared pipeline across the two countries would have cost $5 billion.

The tariffs would have been lower for the two countries had the pipeline followed a central corridor route from Hoima through Kampala to Kenya’s Nakuru town to link with the pipeline from Lokichar to Mombasa. Uganda would have paid a tariff of $11.79 and Kenya $9.29 per barrel.

©Alleastafrica and The Eastafrican

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