Kenya-Uganda pipeline: A plus for Uganda and her neighbours

By: NIGEL M. NASSAR of the EAiF Staff

From what is on ground so far, there is more hope that in about two years, there will be an oil pipeline extended from Eldoret in Kenya to Kampala, a venture initiated by the governments of Uganda and Kenya.

The pipeline, among other benefits, is expected to meet some of the social and economic policy requirements in the two governments’ energy sectors.

Uganda’s specific interest in it for her energy sector, for instance, is “to ensure an adequate, reliable and affordable supply of quality petroleum products for all sectors of the economy at internationally competitive and fair prices within appropriate health, safety and environmental standards,” according to the Project Information Memorandum, a document prepared by the Joint Coordinating Committee (JCC), formed in 2006 by the two governments to run the pipeline’s tendering.

TAMOIL East Africa, the Libyan oil company that won a tightly-contested bid in 2006 to bankroll and construct the pipeline at a development cost of $72m (sh144b), is in advance stages of preparations to kick off with the approximately 360-km pipeline construction.

“We have completed the main preliminary stages like survey and confirmation of the pipeline route, public awareness along the route in both countries, environmental impact assessment, product demand forecast, the sizing of the pipeline and its front end engineering design, plus the procurement of project materials,” says Engineer Ahmed Elgembri, the TAMOIL East Africa project manager.

Elgembri says construction is pending because Ugandan government is delaying to handover a portion of land between Kampala and Jinja.

“If the government hands over that portion to us, excavation should commence immediately. In fact, we were supposed to kick off on June 15, but the portion was not given to us, pending some paper work,” he says.

“We want to kick off simultaneously – first with an opening of the right of way for the first 50km from Tororo towards Jinja, then the construction of a terminal on a square mile span of land at Namwabula in Mpigi district, Mityana Road.”

According to Elgembri, it is at the intended terminal on Mityana Road that the main contractor will establish its camp and start a second phase of pipeline laying towards Jinja so that the two groups meet in the middle.

If completed, the terminal is expected to propel Uganda a notch higher in terms of fuel preservation.

Planned to have 24 reservoir tanks of optimum capacity 160 million litres of different oil products, the terminal, together with the one in Jinja that the company recently secured from government, is expected to lessen the problem of fuel shortages in Uganda.

“Within 15 months from the date of construction commencement, a portion of the pipeline from Eldoret to Jinja should be complete and already pumping petroleum products to the Jinja terminal, now being upgraded to optimum capacity. So instead of going to Eldoret, fuel trucks will be ferrying petroleum products to other parts of the country from Jinja. And in another five months, the whole pipeline should be operational.”

Usually, a disruption in the fuel supply line from Kenya leads to acute shortages in Uganda, with many fuel users terribly feeling the pinch.

What follows, among others, is people grounding their cars; a few taxis with access to fuel hiking transport fares, plus industrial fuel users either halting operations or reducing production to hike prices for their goods and services – a vicious cycle that trickles down to the common man on the street.

But with the more than 220 million litres of oil products that the two terminals will be capable of preserving jointly, Uganda will increase her ability to sustain her fuel users in moments of scarcity.

Currently, the country can hardly store fuel enough to last her users 10 days. On a daily basis for instance, the country consumes 2.2 million litres, yet the demand grows by 4.5% annually.

This means Tamoil’s reserve capacity of more than 220 million litres would in the event of scarcity last the country an entire three or more months, yet chances are high the scarcity might not last that long.

Judging from the last five years, Uganda has suffered shortages in December, January, March, April and June. So ordinarily, with other factors remaining constant, the scarcity should subside in about a month or two; the period during which restocking takes place before another scarcity sets in.

This is how the two terminals, which are direct descendants of the pipeline project, will see the country going places. But the bigger merits lie with the pipeline itself.

With the recent discovery of considerable quantities of crude oil in western Uganda, the pipeline will be needed. Currently, plans for the construction of an oil refinery in Western Uganda are underway so that Uganda is able to refine her crude oil into finished petroleum products. With the refinery in place, Uganda will need a pipeline to transport her excess oil products to Eldoret.

According to Hajji Habib Kagimu, the TAMOIL East Africa chairman, the company recently foresaw the future demand and has modified the pipeline’s design from its initial one-way vehicle to two-way. This way, it allows for reverse pumping – that is, pumping petroleum products into and out of the country. In future, the state will not have to incur more expenses to build another pipeline since the available one then will be able to reverse-pump.

The Project Information Memorandum indicates that the construction alone is expected to create about 3,000 jobs for Ugandan and Kenyan citizens.

More resourceful to the project will be qualified civil engineers and high-end computer scientists to fit and maintain the pipeline’s Scada System and optical fibre cables that help in detecting leakages and fire threats.

Casual labourers, drivers and owners of construction firms will also make a great deal of income. Yet after the construction, about 400 people will be permanently employed by Tamoil, 90 percent of whom will be drawn from Uganda.

One of the main aspects Uganda is looking forward to benefiting from the pipeline is using it to ensure security of supply of imported petroleum products. Evaluated against the alternative modes of transport like road and railway, pipeline transport comes off as the best mode, as it will ensure a secure, safe and environmentally sustainable supply of petroleum products to the Ugandan market.

This is because the pipeline is underground, which eliminates the usual external forces like fire outbreaks and road accidents that cause terrible losses to fuel marketers, as well as deaths arising from actual motor collisions with the fuel trucks.

More often, such collisions, especially on the route between Eldoret and Kampala, ignite fires or the local communities trying to loot fuel ignite the fire, which kills them in big numbers and destroys the physical environment directly, as well as increase the rate of ozone layer depletion arising from the fumes emitted.

With the pipeline in place, such deaths will be curbed and the environment protected – not only through reduced fires but also through reduced traffic on the Eldoret-Kampala highway.

There will be savings accruing to Uganda’s transport sector due to a reduction in the level of damage caused to the road network by fuel trucks.

Losses to both the fuel marketers and outsourced fuel transporters will also be turned into savings. Usually, fuel companies like Shell, Agip, Gapco, Caltex and the like hire trucks to transport their fuel to their respective stations.

And much as none of them is willing to say how much they part with for, say, a truck of fuel from Eldoret to Kampala, they concur that it is expensive for them by road and directly translates into high domestic fuel prices at the pump.

“If Tamoil charges us (fuel marketers) a tariff rate that’s below the cost we are incurring to transport fuel from Kenya to Uganda, it will definitely benefit us and reduce the fuel prices at the pump,” says Ivan Kyayonka, the managing director of Shell Uganda.

“But even if the tariff rates by the pipeline were high, the mere safety the pipeline provides makes it cheaper,” Kyayonka adds.

Tamoil’s financial muscle gave it credibility, helping it win the bid from the JCC.

But what helped more was the company’s proposed low tariff charge of $20 for every ton of oil transported through the pipeline. Bidders like Madhvani International South Africa/Shell Uganda, who proposed $23.9 and China Petroleum Pipeline Engineering Corporation, which proposed $24.1, were beaten to the tender partly because they would over-charge the fuel marketers to use the pipeline.

However, Elgembri says that much as they proposed a low tariff rate, other factors like the global financial crisis and new pipeline design modifications are going to force them to increase the tariff rate.

“We proposed the $20 rate in 2006 at bidding level. Right now a lot has changed; we have done lots of modifications in the project that were not viable at bidding level, but have lately proven important, for instance the addition of the reverse pumping feature. So the increment in the tariff rate will be justified, yet still lower than the fuel marketers incur in transportation by trucks,” Elgembri explains, adding that the rate they are intending to charge will still reduce the operational costs of the fuel marketers by leaps and bounds, thereby lowering the domestic product price at the pump.

The increased reliability of supply of petroleum products will also make the marketers realise more savings accruing from costs they would have incurred importing in excess in speculation of scarcity.

Ultimately, Uganda can claim ownership of an oil industry since she, aside from having her own crude oil, will be having a pipeline to complete the picture by allowing easy access of fuel to her neighbouring countries like the DRC and Rwanda, who also experience difficulty getting fuel home.

Who is TAMOIL?

Tamoil East Africa is owned by the Tamoil Group, whose holding company, Oilinvest (Netherlands), is an important player in the petroleum industry.

The group deals in oil refining and marketing activities in Europe and Africa, with more concentration in North (Libya) and West Africa, where it recently bought off Shell companies in Ethiopia, Sudan and Djibouti. TAMOIL has 18 fuel stations in African countries, including East Africa, which is one of its recent business interests.

With operations in Switzerland, Germany, Spain, the Netherlands, Italy and France, Tamoil will build the Eldoret-Kampala pipeline, own and operate 51 percent of it for 20 years before handing it over to the two governments of Uganda and Kenya.

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