Museveni’s visit to Dar rescues oil pipeline deal, sets project timelines

President Yoweri Museveni’s recent state visit to Tanzania was to rescue the crude oil pipeline project after Dar officials pushed to revise the low tariff that lured Uganda to prefer the southern route to the one through Kenya.

When President Museveni flew to Dar es Salaam on February 25 on the invitation of his counterpart John Pombe Magufuli to hold bilateral discussions, top on his list of priorities was the issue of harmonising the tariff that Uganda will pay for its oil to be transported through the port of Tanga in northern Tanzania.

Energy and Mineral Development Minister Irene Muloni was guarded, only saying that discussions between the presidents were around “issues of intergovernmental agreements to conclude” after “discussions with our partners about the incentive of the Tanzania route.”

But sources said the discussions in Dar es Salaam revolved around the tariff, and President Museveni returned to Kampala with a major victory after his visit ensured “the only impediment” that was still facing the $3.5 billion oil pipeline was removed.

“The only impediment was Tanzania. The ministers were becoming stubborn, insisting that Tanzania should get more from this pipeline. The president flew there, put on his Museveni magic and got the issue out of the way,” he said.

'Best tariff'

The incentive that among other things lured Uganda to choose the southern route is the tariff of $12.2 per barrel of oil that Uganda will pay to move its crude oil through Tanzania, which Ms Muloni says was “the best we got.”

Faced with competing strategic alternative of building an oil pipeline through Kenya or Tanzania, Uganda had already endured delays as the oil companies — which are now partners in the country’s oil development plan — haggled over their preferred pipeline route.

This process eventually ended in Kampala with its partner oil companies Total E&P, China National Offshore Oil Corporation (CNOOC) and Tullow opting for the southern 1445km Hoima-Tanga route, ditching the northern Hoima-Lokichar-Lamu port route.

The EastAfrican has learnt that in a bid to hijack the deal from Kenya, which also discovered oil in the northern region, Tanzanian officials were willing to throw sweeteners into the deal, which included free land and a fair tariff.

But, after getting the deal, Tanzanian officials started raising doubts over the project’s benefits to Dar es Salaam, citing a number of issues, such as the fact that in Tanzania land belongs to the government, so Uganda did not have to compensate any landowners, hence an increase in the tariff to a figure that The EastAfrican could not establish, was seen as a fair deal for Dar. 

After the discussions, however, Tanzania relented and President Museveni welcomed the concessions offered by Dar to ensure that the pipeline project makes strategic and economic sense for both countries.

Key issues resolved

Upon President Museveni’s return from Dar, his presidential press unit released a statement touching on the five key issues that the Ugandan leader and his Tanzania counterpart discussed.

“We resolved that the key issues around this project have been resolved and we should ensure the contractor starts work,” the statement said. 

With this, the Uganda government says it remains on course for the oil pipeline’s Front End Engineering Design (Feed) which is already ongoing, “to be completed in eight months.” The Feed is conducted after completion of feasibility study, paving the way for the partners to hire engineers who will design the technical aspects and investment costs of producing a pipeline from the source to terminal.

The assistant commissioner in charge of pipelines development at the Directorate of Petroleum, John Bosco Habumugisha says the completion date for the Feed is August 2017.

The feasibility study of the Tanga-Hoima route, which was undertaken by Gulf Interstate Engineering and handed to the Ministry of Energy and Mineral Development, put the cost of the pipeline at $3.5 billion.

The Feed works with the feasibility study estimate to arrive at the oil pipeline’s final cost, which Total, the main financier of the crude oil pipeline, will take to its financiers as the required amount for the project, paving the way for the procurement of the Engineering Procurement and Construction (EPC) contractor. 

East Africa Crude Oil Pipeline

Uganda is racing against time and fast-tracking its oil infrastructure projects in order to produce oil by 2020 — the crude oil pipeline, the oil refinery, an airport in the oil-rich Albertine region and other related infrastructure.

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The 24-inch crude oil pipeline, which will deliver 200,000 barrels of crude oil per day, starts in the Lake Albert oil fields west of the country and terminates at Tanga port on the Tanzanian shores of the Indian Ocean.

It is one of the key components being fast tracked to meet this timelines. The country discovered oil in 2006; its licensed areas have 5.4 billion barrels of crude out of the total discovery volume of 6.5 billion barrels to date. But experts say this amount is just a quarter of Uganda’s hydrocarbons.

Besides the pipeline project which was named the East Africa Crude Oil Pipeline, the two heads of state discussed joint electricity and power line projects Kikagati-Murungo, Nshongyezi-Nsongeza and Masaka-Mwanza.

Also on the agenda was the transport infrastructure, touching on the Malaba-Kampala standard gauge railway, which will connect to Tanzania through Bukasa Port, while Dar is building a dry port at Mwanza.