Uganda, Tanzania agree deal to build Sh367bn oil pipeline

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Uganda and Tanzania signed an agreement on their proposed $3.55 billion (Sh366.75 billion) crude export pipeline on Friday, a key milestone for the project which is expected to start pumping Ugandan oil to international markets in three years.

An official at Uganda’s Ministry of Energy told Reuters the agreement covered terms on tax incentives for the project, implementation timelines, the size of the pipeline and local content levels.

The 1,445 km pipeline will start in landlocked Uganda’s western region, where crude reserves were discovered in 2006, and terminate at Tanzania’s Indian Ocean seaport of Tanga.

Uganda estimates overall crude reserves at 6.5 billion barrels, while recoverable reserves are seen at between 1.4 billion and 1.7 billion barrels.

Uganda in April 2016 pulled out of the initial plan to jointly build the pipeline with Kenya from Hoima oilfields to proposed Lamu port via oil-rich Lokichar Basin at an estimated cost of $5 billion (about Sh516.55 billion).

Kenya decided to continue with plans to build a crude oil pipeline from oilfields in south Turkana to Lamu at an estimated cost of $2.1 billion (about Sh216.95 billion).

Economists at pan-African lender, Ecobank, said the decision by investors to sink money into the proposed Kenya or Uganda crude oil pipeline will depend on how risk factors will be addressed.

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The economists, in an outlook report on May 11 in Nairobi, have said that the size of reserves, net present value of the reserves, the cost of building pipelines, field development costs and the stake the government will take are likely to shape investment decision.

“The engagement of the government has been mixed and it is tricky. If you ever try to build a pipeline, you’ve got to bring everyone on board,” Ecobank’s head of research Edward George said. “Naturally, we have rivalry intentions between Kenya and Uganda…that’s very difficult in terms of investor: how do you balance?”

Successful British explorer, Tullow, said in a trading update on April 26 that Environmental and Social Impact Assessment and Front-End Engineering Design for the proposed 891-kilometre, Lokichar-Lamu pipeline are expected to start between July and December.

“Uganda’s pipeline is probably more economic, but Tullow and its partners have various options in Kenya,” George said. “They could rediscover more reserves and monetise these for other companies via the pipeline, link pipeline to South Sudan and Ethiopia or re-establish pipeline link with Uganda.”

Tullow said on May 17 it encountered 75 metres of net oil pay in two zones at Emekuya-1 well in Block 13T. This followed the discovery at Erut-1 exploration well on January 17 with a gross oil interval of 55 metres with 25 metres of net oil pay in the same block. This took Kenya’s recoverable oil reserves beyond 765 million barrels.

“The Kenya Joint Venture and the Government of Kenya continue to progress the export pipeline commercial and finance studies and preparations are under way for the ESIA and FEED which are also planned for the second half of 2017,” the company said in April.

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