Transporting oil to Tanzania to cost Shs40,000 per barrel

Tuesday April 26 2016

 

By FREDERIC MUSISI

Kampala. Tanzania will charge Uganda a tariff/transit fee of Shs40,321 ($12.2) for each barrel of oil going through the crude oil pipeline to Tanga port at the Indian Ocean for exportation to the international market.
The tariff, charged by Tanzania, in the final technical report presented to the heads of states, was described as the “lowest” for Uganda.
According to the report, the transit fee would have been much lower for Uganda (Shs33,050 ($10,00) for an oil barrel, had Uganda, Kenya and Tanzania embarked on a regional pipeline. Kenya, which recently announced discoveries of 600 million oil barrels, would part with a tariff of Shs49,244 ($14.9). But the regional pipeline was deemed very expensive.

On the other hand, the report notes that the tariff charged on the viable alternative route, the Hoima-Lamu pipeline would be Shs55,524 ($16.8) and or even more for Uganda. The route was cheaper for Kenya with a tariff of Shs3,7346 ($11.3).
The tariff charged on each of the route was among the key considerations between mid-March and early April as the technical teams from Uganda, Kenya and Tanzania met for discussions to reach a conclusion on the most cost-effective route of transporting oil, especially from Uganda.

A pipeline provides for a much cheaper and convenient means for moving oil. Transit fees are generally negotiated on technical grounds basing on pipeline design parameters such as capacity, diameter, length, pressure, actual load, and on economic grounds basing on financing costs and political/country risks.
The technical teams zeroed in on the Tanga route as the least cost route for Uganda, basing on, among others, convenient constructability (flat terrain), highest availability (fully functional), lowest environmental footprint, and provides the shortest schedule for Uganda to seeing the first oil export-earliest mid-2020.

The project cost for the 1,403-kilometre Hoima-Tanga pipeline, in the report, was tagged to a cost of Shs11 trillion ($3.55b). On the other hand, the Lamu pipeline was to cost Shs13.7 trillion ($4.2b).
Meanwhile, Uganda authorities will later this week travel to Tanzania for discussions on how to map out a work plan for the construction of the pipeline. Oil companies France’s Total E&P, UK’s Tulow Oil Plc and China’s Cnooc, who will fund the project, were also invited.
The decision over the Tanga pipeline was announced at the weekend at the 13th Northern Corridor Infrastructural Summit attended by presidents Yoweri Museveni, Uhuru Kenyatta and Paul Kagame.

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