Kampala , 24/12/2007
 
UGANDA DITHERS IN THE OIL PIPELINE PROJECT LINKING ELDORET AND KAMPALA CAUSING SIX MONTHS DELAY IN THE CONSTRUCTION WORK

BY Leo Odera Omolo

There is a technical hitch which is holding back the start of the construction work on the planned USD 80 billion Eldoret-Kampala oil pipelines.

The construction has been delayed by more than six months due to the reported indecisiveness of the Ugandan government on how much equity investment, if any to make in the project.

Oil industry source in Kampala have revealed that Kampala is yet to come up with the required Usd 5.8 million –its share of equity contributions to the multibillion dollars project-as consultations between the Ministry of Energy and the Treasury continue.

Uganda Energy Minister Daudi Migereko was recently quoted by the media as saying that he was still “consulting” with the Treasury over Uganda’s investment in the project.

Libyan Oil giant firm Turmoil’s East African subsidiary was in January this year (2007) awarded the tender to build own and operate the pipeline and operate it for 20 years before transferring it to the two governments.

Tamoil was expected to own atleast 51% shares of the pipeline with the two governments of Kenya and Uganda splitting the remaining 49% per share equity.

The Libyan firm was then given six months to carry out detailed planning including plotting the proposed pipeline route before committing itself to the project. The agreement was to be revised after six months to address the parties financing obligations and the contractor was asked to have all facilities in place to start construction by the end of 2007.

Uganda delay in committing itself to part financing the project has subsequently blocked the creation of the Joint Venture Company that would run the pipeline on behalf of Tamoil and the two governments seventy percent of the project funding is expected to be in the form of loans with the rest coming in the form of equity from the three partners parties.

It has been disclosed by sources on both sides that critical agreements governing the project such as guarantees of completion on schedule on the use and eventual transfer of the pipeline and joint venture company to run it cannot be signed until the Ugandan government decides whether it wants to invest in the critical project or not.

But fears also persist within the oil industry sources says that the recent discovery of large deposits of oil in Lake Albert in Western part of the country could be the source of the reluctancy on the part of Kampala to expand the arrangement made earlier with its partners.

“There has been a delay in putting together the necessary agreement leading to rescheduling of construction,” Mr.Ben Towo of the commission for Petroleum Supplies in Uganda’s Energy Ministry was last week quoted as saying.

He, however, declined to give a timeframe work within which the agreement will be signed but sources at Tamoil’s Kampala office said they have been told to expect the work to start in March 2008.

Another impeccable source revealed that Uganda’s failure to resolve its equity commitment was the only issue that was holding the process back. “It is government which is delaying the process.” The contractor is more than ready to commence the work,” said an official who preferred to maintain his anonymity.

“This is not the first time Uganda’s equity participation in the project has come up for public discussion. It was further revealed that the permanent secretary in the Uganda Energy Ministry Fredrick Kabagambe _Kabisa had invited Tamoil to “take up more equity” in the project due to his county’s inability to raise money for the oil pipeline project.

This would have required the Kenyan government to cede a similar amount of equity to Tamoil regardless of its ability to pay for it due to an understanding signed in 1994 that requires both governments to control an equal stake in the pipeline.

It is not clear why the Ugandan government wants outs of the project seen as crucial to the land locked countries energy security.

Initially the parties set July 2007 as the financial closure target to ensure that everything was in place .But having failed to put it financing plan together, the Uganda government prevailed on the other parties to put it off till this month (December 2007) as schedule it is now failing to meet again.

When complete the Eldoret Kampala oil pipeline project will extend the Mombasa –Eldoret Pipeline to the Ugandan capital ,Kampala significantly reducing the cost of importation and transportation of oil products to Uganda and the other landlocked downstream countries of Rwanda ,Burundi and the Eastern part of the Democratic Republic of Congo (DRC) by a bail 40-50 per cent,experts say.

Currently oil products are transported from Kenya to Uganda at a tariff equivalent to USD 20 per cent cubic metre of oil products delivered to Kampala

As part of the multimillion dollar prouild an island oil terminal at a place created in the suburb of Kampala city while the Rwanda government has expressed interest in extending the pipeline southwards to its capital Kigali.

Ends

leooderaomolo@yahoo.com