East Africa: Long-Awaited U.S.$15 Billion Regional Oil Pipeline Deal Signed in Kampala

Fifteen years after discovering commercially-viable crude oil deposits, Uganda begins its final journey to production with the signing on Sunday of a landmark deal with Tanzania and French oil company Total.

The deal, which is expected to unlock upwards of $15 billion in investments, was signed in Kampala. President Yoweri Museveni led the Uganda delegation while Total chairman and chief executive Patrick Pouyanne led the French company's team, The EastAfrican has learnt.

A key element of the project is the crude oil export pipeline to run from Uganda to the Indian Ocean at Tanga and Tanzania President Samia Suluhu travelled to Kampala in her first foreign trip as head of state to sign the tripartite agreement on behalf of her country.

Signing of the deal was earlier scheduled for March 22 in Kampala but was postponed following the death of Tanzania's President John Pombe Magufuli, who was a key driving force behind the pipeline.

A deal for the $3.5 billion East African Crude Oil Pipeline (Eacop) is a strategic win for Tanzania which will earn $12.7 off each barrel of oil transported through it.

Longest heated pipeline

At peak production, the 1,445-kilometre heated pipeline which starts in Hoima in the Albertine Graben, western Uganda, and ends at Tanga Port in Tanzania, will transport 216,000 barrels of crude oil per day. Due to the waxy nature of Uganda's oil, it will be one of the longest heated crude oil export pipelines in the world.

"Because of the pipeline, on each barrel, Uganda will lose $12.7 because of paying for the pipeline. But why don't we concentrate on the refinery, supply Uganda and the interior part of East Africa," President Museveni said in a TV interview in Kampala last year.

The long-awaited agreement allows Uganda to move ahead with a project that has been plagued by delays for more than a decade since the confirmation of commercial deposits.

The country's oil deposits are estimated to have reduced in value from $61 billion in 2013 to $18 billion in 2018 due to a fall of crude oil prices on the world market, according to the Climate Policy Initiative, a UK-based research firm.

The signing is also a coming-out party for President Suluhu. After quickly taking charge of domestic matters in which she made new Cabinet appointments as well as lifting a media ban, President Suluhu has hit the ground running since taking over last month following the death of President Magufuli on March 17. The agreement cements an infrastructure bond between the two countries, which have enjoyed warm relations over the decades.

The deal is also a win for the oil companies -- Total and China National Offshore Oil Corporation (Cnooc) -- which have spent years haggling with a reluctant President Museveni, to expedite the crude oil export pipeline instead of his favoured domestic refinery, for faster commercialisation of Uganda's oil.

Sources in the industry are reluctant to divulge the talking points for the summit and expected outcomes, but they indicate that "there is good will this time to move forward after years of delays".

Yet concerns remain because Uganda is yet to secure financing to back its 15 per cent stake in Eacop, with equity. Ahead of the postponed oil summit last month.

Junior Minister for Finance David Bahati twice met Parliament's Committees on National Economy and Budget to approve borrowing of $130 million from the domestic market to finance participation in Eacop, but on both occasions failed to get approvals.

Myriad disagreements

The money is a precondition for signing of the final investment decision agreement, but Syda Bbumba, the chairperson of the Committee of National Economy, says her team of MPs is yet to approve the loan.

Due to disagreements with the oil companies, Uganda has pushed back FID several times, leading to delays in the commercialisation of the resource.

The parties had set December 2020 as the ultimate date for FID to pave the way for development of oil production projects Tilenga (Total operated) and Kingfisher (Cnooc operated) as well as Eacop construction, over 36 months, with first oil expected in 2024.

But the parties again missed this target due to "matters beyond the control of oil companies", which industry sources told The EastAfrican had to do with the financiers of the pipeline taking long to give approvals.

Eacop is expected to cost around $3.5 billion, of which about $2.5 billion will be debt borrowed from banks and other financiers while 30 per cent of the project is financed through equity from the oil companies Total, Cnooc and the host governments' entities Uganda National Oil Company and Tanzania Pipeline Development Company.

The anticipated investment is the biggest in Uganda's history and is expected to unlock economic growth and knock-on opportunities in construction, agriculture, hospitality, real estate as well as logistics.

More than 2,000 expatriates are expected in the country to work in the oil and gas sector as Uganda looks to become East Africa's first crude oil producer.

"The guest list is not yet confirmed, but all issues about oil will be discussed, not just the pipeline," said Don Wanyama, spokesperson of the Ugandan presidency.

"On the issue of the pipeline I actually agreed because of our brothers in Tanzania because they are our very good friends, brothers... I don't mind them sharing a little bit of this. Otherwise I would never have agreed to the pipeline."

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