9 December 2018

Tanzania-Uganda Oil Pipeline Project Faces Delays

Photo: The Guardian
Oil pipeline.

Dar es Salaam — An initial plan for Tanzania and Uganda to have first oil flow in 2020 through the Uganda-Tanzania Crude Oil Pipe Line (UTCOP) is under threat as investors have been delaying to make final investment decisions, the Ugandan minister for Energy and Mineral Development, Ms Irene Muloni has revealed.

"Indeed, the plan to have the first oil by 2020 is under serious threat because it takes about three years of construction... As I am speaking right now the final investment decision has not yet been made yet," Ms Irene Muloni said.

It was expected that the companies would have made their final investment decision last year, meaning by now they would have started constructing the pipeline, which was scheduled to be ready by 2020. Total Oil of France, China National Offshore Oil Corporation and Tullow Oil of the UK are the companies involved in the project.

The financial model seems to be one of the major reasons the companies have not yet made the final investment decision.

"One of the reasons for choosing the Hoima-Tanga route was because it was the least costly, not more than $12.2 per barrel of oil transported through the pipeline. That was the understanding and agreement. But down the road as we are trying to finalise the [negotiations] the financial model brought out different issues, which were going to go beyond what we had agreed upon and therefore that held us back," she told reporters after a joint Tanzania-Uganda meeting on Friday.

She added: "We needed to negotiate and discuss and agree so that [the companies] are able to move again... As the Ugandan government we have been able to communicate with the companies what our expectations are, and now we have to harmonise our understanding with the government of Tanzania so that each one of us enters into the Host Government Agreement (HGA) with the pipeline companies so that work can commence... "

Ms Muloni said the HGAs would, most probably, be signed next month. "We had hoped that we could sign the HGAs before the end of this year but we have pushed it to January to enable the conclusion of the issues of concern."

She noted that the initial preparatory work had been going on in various areas, but that the actual laying of the pipeline as well as the digging of crude oil from the ground in Hoima could not start until the final investment decision is made by the companies.

The original construction budget for the 1,445-kilometre pipeline was $3.5 billion. The 24-inch diameter pipeline will have a capacity of 216,000 barrels of crude oil per day.

"We have emphasised and urged them to try and fast-track these issues of concern so that the project gets back on the track," Ms Muloni noted, adding that without fast-tracking the project, getting the oil flow to Tanga by 2020 might be difficult.

Her Tanzanian counterpart, Dr Medard Kalemani, detailed the preparatory work that has been completed on the Tanzanian side as the geological, environment and geophysical surveys as well as the valuation of properties found along the route. The trench in which the pipeline would be laid has already been dug all the way from Tanga to Kondoa in Dodoma through Manyara Region. "In fact, we started paying compensation to Tanga residents since last year," Dr Kalemani told reporters.

Dr Kalemani said delays in concluding negotiations with the companies are part of efforts by the Tanzanian government to ensure national interests were protected.

"In such negotiations it is important to ensure that national interests are protected, and people must understand that negotiations cannot be concluded in a single day," he said. He said one issue that Tanzania is fighting for is the inclusion and participation of local companies at various stages of the construction of the pipeline.

Preparing and designing a revenue collection model that will ensure that the two governments get returns is another issue that has to be taken care during negotiations, Dr Kalemani noted.

He was confident that the remaining pending issues are discussable and he hopes that before the end of 2019, everything will be alright.

Tanzania

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