Uganda's push to have first oil by 2020 now looks more viable after it inked an intergovernmental agreement with the United Republic of Tanzania, paving the way for the construction of the crude oil pipeline.
The decision for the East African Community Oil Pipeline (EACOP) to run from Kabaale in Hoima to the coast of Tanga was taken last year but the two governments had been engaged in negotiations on how to go about the pipeline and apportion responsibilities.
Uganda's minister of energy and mineral development Irene Muloni said on Friday: "[the signing] signifies the beginning of a fundamental and long journey from Hoima to Tanga for the crude oil pipeline."
The construction could not start before the states agreed certain things, including the tax regimes that would be incurred by investors to construct the pipeline or the amount of money that would be paid to each of the countries for hosting the pipeline.
At the East African Community summit in Dar es Salaam this month, President Museveni and John Magufuli of Tanzania agreed that they would waive value added tax for the threeyear of the construction phase.
They also agreed that the application of the branch profits tax, the levy charged on repatriation of earnings in the form of dividends, be reviewed as and when the pipeline company structure is complete.
A special-purpose company will be formed to run the pipeline in which oil companies and the two governments will have shares. Prof Palamagamba Kabudi, Tanzania's minister of constitution and legal affairs, and Uganda's Muloni represented their two countries during the signing of the agreement. The agreement still has to be ratified by the parliaments of the two countries.
The deal also covers implementation timelines and the size of the pipeline. Muloni said it would cost Uganda up to $12.2 to transport a barrel of oil from Hoima to Tanga.
The 1,445km pipeline will be heated and be built underground, Muloni said. It will also be 24 inches wide. The Hoima-Tanga route choice, Muloni said, was premised on fiscal incentives offered by Tanzania.
Kabudi said the project "is a landmark for the two countries and two sister nations and the Tanzania government is committed to working hard to expedite the implementation of the project."
Muloni said there were more issues that needed to be sorted. For instance, the Front End Engineering Design study, which will give the exact estimates of what is needed for the pipeline can only be completed in August. The environmental impact assessments in Uganda and Tanzania have been launched.
The incorporation of the pipeline company and the negotiation of Host Government Agreements between the pipeline company and the two governments still have to be worked out. She also said the geophysical and geotechnical studies for the pipeline are planned to start in June.
The pipeline is expected to create up to 10,000 jobs in both countries. Stephen Isabalija, the permanent secretary in the ministry of Energy and Mineral Development, said the pipeline presented the private sector of the two countries opportunities to make money.
"The private sector should take advantage of the opportunities that come along with these developments such as skills development, technology transfer, and opportunities to provide goods and services," he said.