18 February 2019

East Africa: Tanzania, Uganda Top EA's Project Funding Needs This Year

Photo: Daily News
Uganda-Tanzania Oil Pipeline (file photo).

Tanzania and Uganda's oil and pipeline projects will top this year's infrastructure transactions in the region, with the two countries seeking over $7 billion funding for the projects, a new report shows.

According to Debtwire's Africa Project Finance Trend update for 2019, the oil and infrastructure sectors are the most likely to attract interest from investors and financiers this year.

Tanzania is expected to top the infrastructure transactions with the $3.5 billion joint East Africa Crude Oil Pipeline project.

Stanbic Bank Uganda, the lead arranger for a $2.5 billion loan, said that it expects the deal to be concluded in June 2019.

The balance of $1 billion is expected to come from shareholders in the form of equity.

Financial deal

In November 2018, Uganda announced that it expected to have a conclusive financial deal for the joint pipeline with Tanzania by mid-2019, paving the way for its construction after months of delays that have seen Kampala revise its oil production timelines.

Last week, Energy Minister Irene Muloni hinted that production is likely to start in 2022, a slight delay from the revised date of 2021.

Uganda discovered crude reserves more than 10 years ago, but production has been repeatedly delayed by disagreements with field operators over taxes and development strategy. A lack of infrastructure such as a pipeline and a refinery have also held up output.

"We are now looking at 2022, for our first production from the Kingfisher and Tilenga blocks," Ms Muloni told Reuters on the sidelines of the Petrotech conference in New Delhi, India, on Wednesday.

China's CNOOC and France's Total and Tullow Oil have stakes in the two areas. CNOOC is the operator of Kingfisher block while Total leads the exploration in Tilenga.

"We are preparing for production. We have to build a pipeline for exports and a refinery to add value. So unless those two projects are done we cannot start production," said Ms Muloni.

In April 2018, Uganda signed a deal with a consortium, including a subsidiary of General Electric, to build and operate a 60,000 barrel per day refinery that will cost between $3 billion and $4 billion. The refinery is expected to be operational by 2023.

Ms Muloni said Uganda will announce its next exploration licensing round in May.

A final investment decision for the refinery will be taken by September 2020 and the project is expected to be completed in three years' time, she said.

The crude export pipeline through Tanzania, with a capacity to transport 260,000 barrels a day, will be built by 2022, the minister said.

Ownership

Emmanuel Simon Gilbert, head of downstream operations at the Tanzania Development Corp, said the country expects to take a 15-25 per cent stake in the planned pipeline.

Uganda will also take a stake in the project with the majority share being held by Total, adding that the inter-governmental agreement between the two countries has to be signed before moving to the next stage of the project.

"Ugandan oil is heavy and you need to install heaters along the way at four or five different locations ... so it is a bit challenging," he said.

Kampala is waiting for the final investment decision between the governments and the oil partners to determine when the funds will be made available, the terms of the financing, and when the project execution will commence, with a projected timeline of between 30 and 36 months.

The pipeline is also attracting interest from Chinese financial institutions.

Uganda is also expected to conclude financing for its $4 billion refinery this year, after increasing its shareholding in the regional project to 19.5 per cent.

Total SA has taken up a 10 per cent stake, while Tanzania and Kenya have taken up eight per cent and 2.5 per cent respectively.

"In Uganda, we are expecting a major oil downstream transaction to approach the market in 2019," say analysts at Debtwire.

Meanwhile, Tanzanian oil and gas companies have indicated that they will invest around the Uganda-Tanzania pipeline project, especially in Tanga municipality, which is the final destination of the pipeline.

The Tanga Municipal City Council has allocated 2,000 hectares to potential investors, and the Tanzania Ports Authority has acquired 500 hectares.

Other interested companies are Tanzania and Italia Petroleum Products Refinery, Tanzania Petroleum Development Corporation, GBP Tanzania Ltd, Mihan Gas, Simba Oil, and Ngorongoro Petroleum.

Tanzania's Energy Minister Medard Kalemani announced recently that the government had earmarked land for the construction of five giant storage tanks for crude in Tanga.

Other investments

Beyond the oil and gas sector, Tanzania expects to conclude the $3.5 billion financing deal for the construction of 1,057 kilometres of railway, being the second phase of the 2,561km standard gauge railway project.

Uganda too will, in the first quarter of this year, issue a request for proposals for $1.5 billion financing of the 95km the Kampala-Jinja highway project is to be built under a public-private-partnership with the Ugandan government injecting $400 million.

Kenya is expected to table a road brownfield project to upgrade more than 100km between Nairobi and Magadi, south of the capital, for $500 million, as it also expects some progress on the second Nyali bridge project in Mombasa.

Additional reporting by Emmanuel Onyango and Reuters.

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