Tanzania Outshines Kenya in Ugandan Oil Pipeline Deal

Fredrick Ngugi Mar 28, 2016 at 04:07pm

March 28, 2016 at 04:07 pm | Money Moves

Fredrick Ngugi

Fredrick Ngugi | Contributor

March 28, 2016 at 04:07 pm | Money Moves

Photo courtesy of Daily Nation, Kenya.

The arrangement between Kenya and Uganda to share a crude oil pipeline seems to have hit a dead end following the sudden change of heart by the Ugandan government. It was a big surprise to Kenyans after the newly elected Tanzanian President John Magufuli announced on March 2, 2016 that he had struck a deal with Uganda to have the oil pipeline pass through Tanzania to the port of Tanga.

The news that Uganda had overturned its earlier agreement with Kenya prompted the Kenyan government to convene a meeting with Uganda in Nairobi, Kenya, on March 21, 2016.

Reasons for the Change of Heart:

According to a report published by the Daily Nation on March 21, the Ugandan delegation led by President Yoweri Museveni presented the findings of a study done by Tullow Oil and China National Offshore Oil Company to rationalize their decision to explore the Tanzanian route.

The study highlighted a number of issues and key among them was Kenya’s tendency to have protracted land compensation disputes and insecurity. Sources who attended the meeting said the Ugandan team was worried about the possibility of a prolonged land compensation process, which would frustrate Uganda’s plan to start exporting crude oil by 2018.

In the report, Uganda cited the lengthy land disputes experienced in the acquisition of land for the ongoing Northern Corridor Lapsset Project and the Standard Gauge Railway. They also pointed out the possibility of landowners along the proposed route to inflate land prices ahead of the oil pipeline project.

Lack of a proper road network along the Lokichar-Lamu route was the other main reason given by the Ugandan delegation. They argued that lack of proper roads could delay construction. The Daily Nation quoted a Kenyan source who attended the meeting saying that:  We are making commitments knowing that we will keep them. For instance, the Lamu Port will be completed by 2018, which is within Uganda’s oil export projections.

The Kenyan Energy Cabinet Secretary Charles Keter was reported to have assured the Ugandan team that land compensation on the Kenyan side was not going to pose any problems. “We know what to do and its pricing on the Kenyan side will be dealt with,” Mr. Keter said.

Security Concerns:

In the report compiled by Tullow Oil and China National Offshore Oil Company, there were major security concerns over the continued threat of terror in the Northern part of Kenya, mainly from Al-shabaab. The two companies were working in conjunction with French Oil Company Total.

However, Energy CS Mr. Keter is reported to have assured Uganda that the Kenyan government would secure the pipeline once construction was complete, adding that Kenya has been able to secure its current oil pipeline, which runs from Mombasa to Eldoret.

Although there were conflicting details of the outcome of the meeting, the two delegations agreed to meet after two weeks in Kampla, Uganda to further discuss a low-cost option for an integrated regional pipeline.

East African Geopolitics:

Despite the issues presented in the report, a lot of speculations have been going around with some pointing to a possible supremacy battle between Kenya and Tanzania. There appears to be an apparent contest between the two countries over who holds the title of the largest economy in East Africa.

Rumors of mischief on the side of the Tanzanian government seem to have been confirmed after the Kenyan Energy Cabinet Secretary Charles Keter and his delegation were denied entry to the port of Tanga in Tanzania on March 23, 2016 where they had gone to join their Ugandan counterparts on a fact-finding mission.

Only the Ugandan team was allowed to proceed, leaving the Kenyan delegation stranded at the airport for almost an hour. However, the Kenyan government through state house spokesman Manoah Esipisu asserted that Kenya’s relationship with Tanzania remains unshaken.

Some people have also speculated that the periodic political uncertainty and endless corruption cases in Kenya may have prompted the Ugandan government to reconsider its earlier agreement with Kenya on the $4 billion project.

But given the healthy relations that Kenya has had with Uganda over the years and the fact that the Tanzanian route will be longer, many are waiting to see what will be achieved when the two delegations meet in Kampla, Uganda.

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