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Uganda’s Oil Pipeline Decision: What Was Originally A Commercial Decision Has Moved Into The Political Realm

In August 2015, Ugandan and Kenyan officials announced that a shared pipeline would be constructed, terminating at the deep water port at Lamu, Kenya, which is still under construction, in preference to a route ending at the Mombasa port further to the south.

However, the two sides made differing announcements, with the Ugandans mentioning conditions relating to tariffs and security, that the Kenyans glossed over in their announcement.

It came as little surprise, then, that one of the major private partners in the Uganda fields has expressed extreme concern over security at Lamu, which is located on Kenya’s remote northern coast near the border with volatile Somalia.

The investor, who requested anonymity due to ongoing negotiations, announced support for the Ugandan government’s feasibility studies on a route to the northern Tanzanian port of Tanga instead.

Security concerns

After Kenya discovered oil in 2012, it seemed obvious to link these assets to Uganda’s export pipeline. But the cracks began emerging once it became clear that the government in Nairobi, Kenya’s capital, had a political agenda linked to the route choice.

The Kenyan government’s idea was to use the pipeline to spur on its ambitious Lamu Port, Southern Sudan and Ethiopia Transport corridor (LAPSSET) megaproject. Its ambition is to build a road and rail network connecting Kenya to its northern neighbours and a second deepwater port at Lamu.

Politically, the project is seen as vital to the development of the restive, disenfranchised regions of northern Kenya.

However, the Kenyan oil discovery coincided with an increase in Islamist terrorism in the country emanating from Somalia-based terrorist group Al Shabaab. Much of this violence has been concentrated in north-eastern Kenya, including Lamu County. The pipeline would pass through this area.

The Kenyan government, pledging to guarantee security, has launched a military operation in the region while beginning to explore various electronic monitoring and security systems to protect the prospective pipeline.

There is also debate among security experts as to how much of a target the pipeline would, in fact, be. Al Shabaab does not have a history of targeting economic assets, preferring instead high casualty attacks on soft targets.

However, oil companies with interests in the project have expressed concerns that the area is too high riskAmong the many obstacles that have impeded the development of oil reserves in Uganda and Kenya, one stands out above all others.

The Mombasa route by contrast is more secure, shorter, and could run alongside an existing products pipeline linking the coastal city to Nairobi. However, this route does not tie into the Kenyan government’s northern development plans, and would likely be marred by problems arising from land usage.

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Land disputes in Kenya have historically sparked violence and delayed infrastructure projects. The Mombasa route would have to pass through some of the country’s most densely populated areas, which feature either overlapping or incomplete land deeds.

The additional cost of compensating individuals along the route, plus the time this would add to the project, may well make it an unattractive alternative.

Tanzania: A viable alternative?

Given the impasse on potential routes through Kenya, the Ugandan government began considering the option of using a pipeline through Tanzania more seriously.

Ugandan president Yoweri Museveni has a strong personal relationship with his Tanzanian counterpart, John Magufuli. A pipeline project presents an opportunity for Uganda to strengthen ties with Tanzania and reduce its reliance on Kenya.

A Tanzania route would be closer to existing infrastructure and the terrain is less mountainous than in northern Kenya, making it cheaper to build. The route has no major security threats, and the land is government owned, mitigating risks in the early relocation phase.

A public guarantee from the Tanzanian government not to impose transit fees, at least for the initial years, also supports the pipeline’s commerciality.

However, there are questions over the tangible benefits the population and government could really gain from the pipeline, other than the initial employment opportunities. In order to sustain the benefit to the Tanzanian side, fees could be imposed over the medium to long term.

While high-level negotiations continue, the oil companies and other vested interests are left to speculate whether the Tanzania option is part of Mr Museveni’s strategy to secure a better deal with Kenya on pipeline tariffs and fees, or whether it is genuinely his preferred choice.

One of the partners in the Ugandan fields has already agreed in closed-door negotiations to finance the construction of the Tanzania pipeline, should that option come out on top, removing one of the major obstacles to completion and allowing work to move ahead quickly.

However, if Uganda strikes a deal with Kenya, questions will remain. It is not clear if interested oil companies can ever be offered enough concessions to accept the Lamu route, or if the Kenyan government would agree to a Mombasa route in preference to allowing Uganda to circumvent them entirely.

While the Ugandan government cannot please all of the stakeholders, a decision in any direction will at least bring the project one step closer to development.

source: This Is Africa

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Written by PH

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