Business Daily (Nairobi)
Zeddy Sambu
28 January 2008
Kenya and Ugandan authorities have finalised plans to make payments for their equity stake in the Sh5.2 billion Eldoret-Kampala oil pipeline, paving the way for construction work to begin.
Work on the project has been pending since Libya's Tamoil won the contract to build it in January, last year. The snag has been mainly attributed to the delay by Kampala in making a final investment decision.
Tamoil won the contract to build, own and operate the pipeline for 20 years before transferring its ownership to the two governments.
Energy ministry officials said delay by the parties to agree on six major aspects of the project had slowed down progress and set February 29 as the new deadline for end of negotiations.
Construction is expected to begin within three months and will take one year, said Mr Patrick Nyoike, the Energy permanent secretary.
"Ready market exists. Attractive rates of return is assured upon completion of the project mid next year," Mr Nyoike told Business Daily in an interview. Commissioning of the project had earlier been set for March.
Tamoil has a controlling 51 per cent stake in the project with the two governments holding an equal share of the remaining 49 per cent. The Libyan firm had been given six months to plan before beginning construction work.
The agreement was, however, revised after six months to give the parties time to address their financing obligations.
Mr Nyoike revealed that critical agreements governing the project would be signed by end of next month. These include guarantees for completion on schedule, use and eventual transfer of the pipeline to the two governments and the formation of the joint venture company (JCC) to run it.
A legal framework governing bilateral and international agreements defining legal, commercial, financial arrangements, taxation, transportation and customs laws is also on the cards.
Kenyan officials said the agreements could not be signed until the Ugandan government made a final decision to invest in the project that is critical to its future energy security as well as its ability to export oil from the recently discovered wells in the country's west.
The Kenya Pipeline Company, which is the dominant player in the regional energy sector exports white products to Uganda, Tanzania, Rwanda, Burundi, the Democratic Republic of the Congo, and Sudan.Company officials said it had received Kenya's contribution to the project and that Uganda had committed to making its share of contribution, paving the way for Tamoil to start the work.
Uganda's delay in contributing its share of the project money had stalled efforts to create a joint-venture company that will manage the pipeline on behalf of Tamoil and the two governments. Regional demand for petroleum products stands at 580 000 cubic metres a year and is growing the rate of between 3.5 per cent and five per cent.
The proposed 8-inch diameter pipeline will have the capacity to pump 1.2 million cubic metres of oil per year with a flow rate of 168 cubic metres per hour. The project covers a total of 320 km.
The Kampala terminal will have a capacity to hold 72,000 cubic metres of seven different white products and four interface tanks. The Kampala project is independent of the existing Mombasa-Eldoret pipeline but plans are under way to jointly manage the two pipelines in future.
Oil marketers said they were ready to sign agreements with promoters. It is also classified as high priority project in both countries.The cost of transporting oil currently varies between $38-$42 per cubic metres- a cost that is expected to decline significantly with completion of the project.
"Viability of the project as tested for various tariffs and investment configurations shows that it is viable at between 18 per cent - 22 per cent. Project cost will cover design, engineering, supervision, preliminaries, laying of the pipes and construction of Eldoret terminal, Sinendet pump station, Intermediate pump station and Kampala terminal.
Some $12 million is also needed to improve pumping capacity at Burnt Forest and relocation of the Kampala terminal for $4.7 million among others.
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