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White elephants? Region’s big-ticket projects in limbo

by kenya-tribune

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In 2013, the presidents of Rwanda, Kenya, Uganda and South-Sudan came together to fast-track the implementation of infrastructure projects on the Northern Corridor, at a time when the pace had slackened or stalled for some, due to a lack of commitment by Tanzania.

Under the Northern Corridor Integration Projects, the four leaders forged a unity of purpose in what famously came to be known as the Coalition of the Willing (CoW).

Among the targeted joint projects were oil pipelines, standard gauge railways, a refinery, a port and power projects.

The highly anticipated East African crude oil pipeline from Hoima in Uganda through Lokichar in Kenya to the proposed Lamu port on the Indian Ocean coast is a non-starter.

To date, its construction is still in limbo, almost three years after it was approved by the regional heads of state.

The pipeline, which was to be completed this year, has been delayed by the wavering of investor interest, especially after Uganda abandoned it for the proposed 1,445km long Hoima-Tanga one led by Tanzania.

But even the Hoima-Tanga pipeline construction that was expected to start late last year hit a snag, after investors who had expressed interest demanded a higher transit tariff beyond the $12.20 per barrel, which had earlier been agreed on.

This has raised serious doubts over Uganda’s target date for the commencement of production.

In 2016, Uganda’s Energy Minister Irene Muloni said construction could take about three years.

The pipeline, estimated to cost $3.55 billion, will transport Uganda’s crude from Kabaale in the western Hoima district, to Chongoleani peninsula near the Tanga Port in Tanzania for export.

Uganda and Tanzania are expected to finance 70 per cent of the pipeline’s total cost through international lenders while the remaining 30 per cent capital will be raised through equity by Total, Tullow, China National Offshore Oil Corporation (CNOOC) and joint venture partners.

It is argued that Uganda’s decision to abandon the Kenyan route of the regional crude pipeline also watered down the Lamu Port South Sudan Ethiopia Transport (Lapsset) corridor, an acclaimed joint project for the region that would have encompassed an oil refinery in Hoima, transport corridor to South Sudan oil fields and to Ethiopia, Lokichar oil pipeline and the Lamu port.

The future of the Northern Corridor infrastructure projects now hangs in the balance.

South Sudan’s Minister for Petroleum Ezekiel Lol Gatkuoth told The EastAfrican last November that the move by Uganda to ditch the Kenyan route not only put the future of the Northern Corridor projects in limbo but also the ambitious Lapsset.

“The Lapsset corridor was supposed to benefit South Sudan and we are still committed to it. But we cannot do much about other developments in the region. Uganda’s rejection of the Kenya route in favour of the Tanzania one is a serious issue,” said Mr Gatkuoth.

The region had also planned a joint crude oil refinery in Hoima, western Uganda, but its implementation has also been marred by lack of commitment by investors.

The project has fallen behind schedule by close to five years after member countries’ lacklustre pace in acquiring ownership.

Uganda, Kenya, Tanzania, Rwanda and Burundi had been allocated a combined 40 per cent shareholding in the refinery, translating to 8 per cent stake for each, with 60 per cent of the shares reserved for private investors.

So far, only Tanzania has taken up its full 8 per cent shareholding in the refinery while Kenya has only taken up 2.5 per cent stake.

Rwanda and Burundi are yet to commit to the project. As a result, Uganda is expected to take up an additional 11.5 per cent bringing its total shareholding in the Hoima-based refinery to 19.5 per cent after the French oil giant Total SA took up 10 per cent stake.

The deadline for acquisition of shares had been set for 2014 before being extended to June 2016.

In 2016, Uganda’s Energy Minister Irene Muloni pushed the completion date of the refinery to 2020 from 2018 following delays by EAC member states to take up ownership and get another lead investor after talks with the Russian consortium Rostec Global Resources, which had won the tender to finance, build and operate the refinery collapsed in the last minute.

Last year, Ms Muloni said the refinery would now be operational by 2023 after a consortium led by the US multinational General Electric Company contracted to build the 60,000 barrel-a-day plant delayed in carrying out its front-end engineering design, or FEED.

The design initially due for completion in 2017 started last year 2018. Ms Muloni said the delay would impact the completion of the refinery.

As the region struggles to get its oil infrastructure in place, Kenya’s ambitious plan to evacuate crude by road has been hit by delays, blamed on lack of proper planning, logistical nightmare and lack of widespread consultations.

This means the country’s dream of exporting oil has yet again been deferred to June this year.

Analysts had long warned that Kenya’s hurried plans to have its oil hit the international markets under the Early Oil Pilot Scheme (EOPS) was doomed to fail but the government, Tullow Oil and its joint venture partners insisted on its implementation.

A 2016 scheme to evacuate crude by road from Lokichar in Turkana to Mombasa port, a distance of more than 900 kilometres has now proved to be a daunting task.

The failure to adhere to set timelines, considering that Kenya had set a target of February 2019 to ship out the first consignment of 450,000 barrels, has seen the EOPS join the other regional projects that are now nothing more than pipe dreams.

Tullow has admitted that initial targets to truck 2,000 barrels per day have failed, with the three firms contracted to transport the crude managing an average of 1,800 barrels a week, which translates to about 250 barrels per day.

Since the trucking of the crude commenced in June last year, only 60,000 barrels have been transported for storage in Mombasa and the company is hoping it can achieve the targeting of transporting 2,000 barrels by April.

Just like many other projects whose implementations are facing challenges, the EOPS was conceived, designed and implemented under circumstances that have largely remained opaque.

The government, Tullow and its joint venture partners Africa Oil Corp and Maersk Oil have failed to adhere to disclosure laws.

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