Tanga pipeline takes shape, as Total mulls Kenyan tie-in
Thursday, Oct 05, 2017
The downstream components of Uganda’s maiden crude oil development took anther step forward in September with the ratification of a deal to route the export pipeline through northern Tanzania.

In common with the upstream project, progress has accelerated in recent months on both the so-called East African Crude Oil Pipeline (EACOP) and the domestic refinery planned at Hoima, near the Albertine fields.
A framework agreement for the refinery is due to be signed this quarter with the investor consortium belatedly selected during the summer.

Meanwhile, reports have begun emerging that super-major Total is considering pushing for Nairobi’s first exports to be delivered to the coast through the EACOP facility rather than internally via Lamu, as previously planned by the incumbent upstream developers. The French firm is the central player in the integrated Ugandan project and now also a stakeholder in Kenya’s oilfields.

The Tanzanian parliament on September 11 ratified the intergovernmental agreement signed with Kampala in May – with ministers reassuring MPs on the stringency of land compensation and local content requirements to be demanded of the pipeline’s foreign backers in order to secure assent. The deal has been cleared by the Ugandan cabinet but it remains to be put before the legislature.

Following the ratifications, the two authorities are due to sign Host Government Agreements with the three IOCs developing both the up- and downstream elements of Uganda’s Lake Albert project – China National Offshore Oil Co. (CNOOC), Total and the UK’s Tullow Oil. Negotiations thus far have covered transit fees and taxation – as well as the compensation and local content rules.

The estimated US$3.55 billion EACOP is currently in the front-end engineering and design (FEED) phase, with studies close to completion by the US’ Gulf Interstate Engineering. The project comprises a 1,445-km, 24-inch (610-mm) heated pipeline capable of carrying 216,000 bpd of waxy Ugandan crude from Hoima to the port of Tanga on the Indian Ocean.

Total is taking the lead on the contracting, and received expressions of interest (EoIs) in mid-June for the engineering, procurement and construction management (EPCM) contract. The bidding process is expected to commence imminently in preparation for the start of construction envisaged next year.

Completion is scheduled for 2020 – although the timetable is regarded as highly optimistic in light of the persistent delays that have beset all elements of Uganda’s development plans since first oil was struck more than a decade ago.

A team of Sumitomo-Mitsui Banking Corp. (SMBC), Imperial Bank of China and the local unit of South Africa’s Standard Bank was selected in August to advise on the debt-financing package – expected to cover around 70% of project costs. The remaining 30% will be raised through equity contributions by the IOCs and the two countries’ NOCs. Recent statements from Total and Tullow anticipate a final investment decision (FID) by year-end.

In 2015, Total persuaded Uganda of the superior merits of the route via Tanzania at the last minute in preference to one terminating at Lamu.

Hoima progress
The estimated US$4 billion project to build a greenfield refinery at Hoima has an equally chequered history. However, an investor consortium comprising US engineering giant GE, Yaatra Ventures, also of the US, and Italy’s Saipem – as the EPC contractor – reached core project terms with Kampala in August to develop the planned 30,000 bpd facility, following a relaunch of the four-year-old bidding process earlier in the year.

A project framework agreement was said at the time to be due within around two months. Details were not provided on the relative shareholdings of the consortium partners, the government and East African Community partners.

Tullow, the lead developer of Kenya’s Turkana oilfields, had lobbied against Total and in favour of sending the Ugandan crude for export via northern Kenya – in light of the possibility of delivering both countries’ first oil through the same pipeline.

Since Kampala’s rejection of the former route, the UK firm has stated plans to install the Lokichar-Lamu stretch of the proposed pipeline for Kenya’s crude alone. However, in the wake of the French firm’s acquisition of Denmark’s Maersk – a stakeholder in the Kenyan fields – early discussions are reportedly being held on a wholesale reversal of the original plans. This would entail the Kenyan crude being delivered to international markets through the Hoima-Tanga pipeline.

Reaffirming a commitment to the Ugandan pipeline when announcing the Danish acquisition, Total’s CEO Patrick Pouyanne hinted at the possibility. “We’ll not change our plans on [the] Uganda [export pipeline], but maybe we’ll see if we can be efficient and participate in the development of Kenya,” he said.

The cost savings – for the companies and especially for cash-strapped Nairobi – would be considerable, with the cost of the Lokichar-Lamu pipeline having been estimated at US$2.5 billion.

However, the latter is a core component of the much-vaunted, Nairobi-led multi-billion dollar Lamu Port-South Sudan-Ethiopia Transport Corridor (LAPSSET) project – which calls for the development of a wide range of infrastructure links along the East African coast – and would further signal the scheme’s failure thus far to deliver on hugely ambitious aims.
Furthermore, both the pipeline and the regional project form part of Nairobi’s plans to spur economic development in the poor and politically unstable north of the country.

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