Uganda cedes stake in oil pipeline to Tamoil of Libya, local investors

By JULIUS BARIGABA

There has been a new twist in the control and ownership of the long anticipated Eldoret-Kampala oil pipeline, with sources confirming to The EastAfrican that contrary to the original plan, Uganda will now only take half of 24.5 per cent stake it was supposed to take in the venture.

Long accused of dragging its feet and reluctance to meet its part of the bargain in the project, it has emerged that Kampala is now only ready to finance land acquisition for the project.

But Energy minister Daudi Migereko who declined to comment on government's commitment to its equity obligations told The EastAfrican last week that Kampala maintains a "carried interest" in the 358km pipeline project despite the budget providing for mainly land acquisition this financial year.

"We have decided that the project will be developed by the private investor but the government will maintain a carried interest," said Mr Migereko.

This means that the private investor takes up the remaining 12.5 per cent of Kampala's stake by providing the financing that the government was meant to commit in the joint venture project between itself, the government of Kenya and the private investor. Sources also indicate that Kampala has negotiated for a position in which the investor would recover his investment injected in the project on behalf of Kampala by claiming the profits that would accrue to Uganda's stake.

Libyan oil giant Tamoil won the tender through its affiliate Tamoil East Africa, to build, own and operate the pipeline in 2006 in a joint venture between itself and the governments of Uganda and Kenya. Estimated to swallow upwards of $80 million, the project requires Uganda and Kenya governments to commit $5.8 million each for their stake, while the private investor foots the rest 70 per cent borrowing against 30 per cent cash financing.

Landlocked Uganda spends millions of dollars transporting oil products from Mombasa mainly and to a small extent, from Dar es Salaam. A plan to reduce the burden of Uganda — and later other hinterland countries of Rwanda, Burundi and eastern Congo which would extend the pipeline downstream — was drawn as an alternative to the costly mode of transportation along the northern corridor.

In the project's original plan, the private investor was to own 51 per cent of the pipeline before transferring it after a period of 20 years to the two governments whose 49 per cent stake was split right through the middle.
This meant that both governments were to commit equal resources and make the same decisions regarding tendering, investment, development and use of the pipeline. Indeed the project's implementation is co-chaired by the Energy permanent secretaries of both Kenya and Uganda, Patrick Nyoike and Fred Kabagambe-Kaliisa respectively.

However, there are worries that Kampala is ceding its stake in a strategic infrastructure project for no clear reasons to unnamed persons who are masking behind Tamoil, upping its stake. Clearly $5.8 million is a worthwhile investment in a project that would guarantee the country a cheaper option to costly fuel transportation.

The national budget framework paper which spelt out the country's expenditure priorities for 2008/09 said among other things, that Uganda faces the challenge of meeting its equity contribution as it still has a shortfall of Ush8.16 billion ($4.6 million). This means that Uganda has only $1.2 million available, but the paper raises more eyebrows, saying the ministry also requires Ush250 million ($142,857) to meet its other obligations under the various project agreements on pipeline promotion and development.

The budget goes ahead to state that funding priorities in the Energy ministry to the tune of Ush449.34 billion ($256 million) in the current financial year are energy planning, management and infrastructure development — which take up 66 per cent of the ministry's budget, while petroleum supply, infrastructure and regulation — under which the pipeline falls — is left almost bare, with a paltry Ush870 million ($497,142), part of which will now finance compensation of land owners.

The pipeline, which has endured several postponements since it was awarded to Tamoil in January 2007, has not been short of controversy. First, the governments of Kenya and Uganda raised queries over the contractor's capacity to finance the project, but later, the government of Uganda started to send signals that it was pulling out of its 24.5 per cent ownership in the project arguing that it was not interested in the pipeline, but rather, its contents.

Then in May this year, the Energy ministry again said construction would not start due to delays that were blamed on Kenya, which had got consumed in fixing emergencies occasioned by the post-election crisis that hit the country following the December 27 elections.

Current chair of the Natural Resources Committee of parliament Winnie Matsiko told The EastAfrican that the committee was equally in the dark about the project and would meet ministry officials this week to get an update on the situation. But the committee's former chair Emmanuel Dombo was even more unequivocal: "This project is long over due. My committee raised all these concerns and as all these delays go on, the heavy trucks that transport oil products are destroying our roads."

Records of the Natural Resources Committee indicate that just last year, it warned the ministry of Energy to negotiate carefully to guard against future losses and weigh the would be effect of the country's withdrawal from a strategic project such as the oil pipeline.

Mr Dombo also said that the land acquisition process itself is already tinged with controversy. The legislator said that as late as June this year, his committee had been approached by complainants who said they had not been compensated and demanded attention of the minister, an issue that was referred to Mr Migereko's office.

It is understood however that Kampala which has often been accused of dragging its feet on the project is now keen to expedite the construction, starting with the inland terminal depot. "We are looking to get some work started on the Ugandan side. We are looking at the main depot terminal, to see if it is possible to expedite that component of the project," a source at the ministry told The EastAfrican.

While this goes on, the country's energy bill is growing. Thermal power generating firm Aggreko has applied to the electricity regulatory authority for an upward tariff adjustment due to increased cost of oil. The firm says power generation has become more costly not just because of hikes in global oil prices, but a lack of cheaper transportation. Diesel is transported by tankers from Mombasa to Kampala.

At that, railway concessionaire Rift Valley Railways has issued notice to increase its freight charges effective August,  also citing the spiralling fuel prices. These two issues will clearly rub salt into the wounds of Uganda's energy problems.

The Eldoret-Kampala pipeline is expected to significantly reduce transportation costs of oil products by about 40-50 per cent, which translates into $20 per cubic metre of oil instead of the current tariff of $35-$40 per 1,000 litres.

Early this year, Rwanda came aboard the pipeline extension plans to Kigali.

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