4 August 2018

Tanzania: Two Firms Lead Race for Uganda-Tanzania Pipeline Deal

Photo: The Independent
Tanzania President John Magufuli and Uganda President Yoweri Museveni (file photo).

Australia-based WorleyParsons and London-based Penspen are said to be the lead contenders to win the contract for the construction of the Uganda-Tanzania pipeline that will start in Hoima and terminate at the sea port of Tanga in northern Tanzania.

A source with knowledge of the matter told The EastAfrican that the two firms are likely to be appointed the engineering, procurement and construction management services contractors for the joint pipeline.

"These two are the lead contenders out of the six firms that the technical team from the two countries and the development partners are reviewing. A decision will be made in November," the source said.

Last week, Uganda's Energy Permanent Secretary Robert Kasande said that agreements with Tullow Oil, Total and China National Offshore Oil Corporation, who are jointly developing Uganda's oil, could be signed in the next three months.

Tullow said in its half-year update last week that the Ugandan deal is expected in coming months as the upstream and pipeline front end engineering design (FEED) and upstream environmental and social impact assessment have been completed, and now await the award of the engineering, procurement and construction (EPC) contracts.

Awaiting decisions

"The contract awards are under evaluation and overall project sanction is expected by the end of the year. The joint venture partners continue to work towards reaching a final investment decision for the development project around the end of 2018, with operational activity continuing as planned.

"Discussions on the key pipeline project agreements continue between the joint venture partners and the Ugandan and Tanzanian governments. The pipeline FEED and EPC tender process for the pipeline have been completed with the award to be made in the second half of this year," Tullow said, adding that the project financing for the pipeline and development of the financial model are ongoing.

Together with the oil firms, Uganda and Tanzania have been working on the projects financing blueprint for the past year. The two countries will raise 70 per cent of the project's total cost from international lenders. The remaining 30 per cent will be raised through equity by Total, Tullow, CNOOC and the joint venture partners.

The Tanzania Petroleum Development Corporation and Uganda National Oil Company, through its subsidiary Uganda National Pipeline Company, are also expected to be part of the fundraising drive.

"We are delighted to be awarded this contract and we look forward to developing our relationship with Tullow Oil and increasing our business in Kenya," Andrew Wood, the chief executive officer of WorleyParsons said.

The British firm Penspen is also not new to the region, having been awarded a contract in 2014 to undertake feasibility studies on the proposed Kampala-Kigali segment of the Eldoret-Kampala-Kigali pipeline. Penspen completed the study in 2015.

The pipeline was meant to interconnect with the one running from Nairobi to Eldoret and would ease the transportation of petroleum products to and from Kampala and Eldoret, including a spur line to Jinja.

Infrastructure development

"I am delighted that Penspen could be selected for this project. We are keen to contribute to the economic growth of this region through the development of oil and gas infrastructure, and we have a strong history of success in East Africa," the chief executive officer of Penspen, Peter O'Sullivan, said.

Last week, Reuters reported that Tullow was considering reducing its stake in Kenya's oil block from 50 per cent to 30 per cent before the final decision, with eyes trained on Total as the likely buyer.

The move would give Total a majority stake in the project. Last year, Tullow agreed to a substantial farm-down of its assets in Uganda to Total in a $900 million deal, about seven months after it received a production licence from the Ugandan government.

"Tullow and its joint venture partners, Total and CNOOC Ltd, are awaiting approval of the farm-down transaction from the government of Uganda. This approval is expected in the second half of the year. At completion of the farm-down, Tullow anticipates receiving a cash payment of $100 million and a payment of the working capital completion adjustment and deferred consideration for the pre-completion period, with $59 million for 2017 and an estimated $70 million for 2018. A further $50 million cash consideration is due to be received when FID is taken," Tullow said.

However, for Tullow and Total, the past month has been particularly bad for businesses in the region, with unrest stalling Tullow's operations in Kenya, and South Sudan pulling the plug on Total over some exploration blocks.

Last week, South Sudan's Petroleum Ministry announced that it had called off talks with Total about developing two oil blocks.

"The Ministry of Petroleum regrets that negotiations with Total have concluded in no deal. Total and the government failed to agree on the duration of the exploration and the commercial terms of a production-sharing agreement. We now look forward to bringing new investors into talks for these licences," Petroleum Minister Ezekiel Lol Gatkuoth said in a statement.

Total, alongside Tullow Oil and Kuwait Foreign Petroleum Exploration Company, have been negotiating since 2013 with South Sudan to enter into a new agreement for two oil blocks.

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