New crude oil pipeline deals signed, production for 2025

The chief executive of French oil giant, Total SE, yesterday described as a “momentous occasion in history” the signing in Kampala of the three agreements for development of the proposed East African Crude Oil Pipeline (EACOP).

Mr Patrick Pouyanne projected that the first commercial oil production in Uganda will start 2025, roughly two decades after commercially viable oil deposits were discovered in the country.

“It is the beginning of a journey,” Mr Pouyanne, who jetted into the country yesterday morning for the signing ceremony alongside President Museveni and his Tanzanian counterpart Samia Suluhu Hassan, said.

“Expect the first oil tanker to dock at Tanga port in early 2025,” he added.
Once developed, the 1,443-kilometre EACOP will transport Uganda’s crude oil from oil fields in the districts of Nwoya, Buliisa, Hoima and Kikuube to Chongoleani terminal in Tanga at the Indian Ocean coast in Tanzania, where it will be loaded into tankers en-route to the international market.

The transit tariff per barrel of crude oil going through the pipeline was capped at $12.77 (Shs46,327) owing to the tax concessions offered by the Tanzanian government. 

The pipeline is a medium to take Uganda’s crude oil to the international market, wherever prices are favourable; so, the higher the tariff/transport costs the lesser benefits. In addition, there is an overhead cost of extracting the oil from the ground.

The project is expected to cost at least $3.8b (Shs13trillion) pooled through the EACOP holding company co-owned by the oil companies—Total E&P and China National Offshore Oil Company (Cnooc), and the governments of Uganda and Tanzania through national oil companies, Unoc and TPDC, respectively.

Mr Pouyanne described Uganda oil project as “one of the largest in Africa” with capital requirements of more than $10b (Shs37 trillion) and which represent significant social and environmental stakes as the company’s area of operation is partly located in the Murchison Falls National Park.

“So we must do it in an efficient way,” he said. “It won’t be a success if we don’t show exemplary [care] of the environment and taking care of the people.”

Agreements
Three agreements were signed yesterday; the Host Government Agreement (HGA) for Uganda signed by Energy minister Goretti Kitutu and the pipeline holding company managing director, Martin Tiffen.

A separate HGA with the Tanzanian government which was due for signing was deferred to next week following last-minute shuffling and amendment of documents on the country’s shareholding in the project.
The HGA, which Uganda, Tanzania and Total E&P - the lead developer of the pipeline started negotiating in November 2017 - has been the most burdensome, officials said.
It details, among others, governments’ obligations, investor duties, environmental and other relevant standards, liability, and project closure.

The other agreements are the Shareholders Agreement; that details the obligations and shareholders structure; and, the Tariff and Transportation Agreement (TTA), which is between the pipeline company and the shippers of Uganda’s crude oil through the pipeline. These were signed by chief executives of Unoc and TPDC, Mr Tiffen, Cnooc Uganda President Chen Zhuoubiao and the Total E&P senior Vice President for Africa, Mr Nicolas Terraz.

Energy minister Kitutu is in the coming weeks expected to table before Cabinet, and later Parliament, a Bill which crystalises all the signed agreements relating to the pipeline.

With the heavy work—negotiation and signing of the agreements—out of the way, officials intimated to this newspaper that next on agenda is “to tie a few loose ends” including government re-evaluating the Engineering, Procurement and Construction (EPC) contracts called by the oil companies since all money spent is recoverable after sale of the crude oil.

One official was optimistic that reviewing the tenders could take at least another month. Another revealed they expect construction works to start latest by July.

What is, however, not yet known is when Total E&P and Cnooc intend to start work. Neither Mr Pouyanne who hinted that at least $5b (Shs18trillion) would be spent locally nor the Cnooc Uganda President, Mr Chen, was clear in their speeches.

The Ugandan section of the pipeline runs through 179 villages in 10 districts—Hoima, Kikuube, Kakumiro, Kyankwanzi, Mubende, Gomba, Ssembabule, Lwengo, Kyotera and Rakai. 

In many of these areas, locals are familiar with the project and expectant of opportunities including jobs and provision of goods and services, according to earlier findings by this newspaper.

The oil sector regulator, the Petroleum Authority of Uganda, has ring-fenced some 25 fields including hotel and catering, transport and logistics, security, civil works, human resource management, survey, camp management, and provision of labour, for only Ugandans.

A 2014 study titled, A survey to foster opportunities for Ugandans in the oil and gas sector, commissioned by government and oil firms detailed that the oncoming development/construction phase will create between 100,000 and 150,000 direct and indirect jobs.

This is tagged to investments of between $10b to $15b (Shs37t-Shs55t) for development of the EACOP, and the oil fields and related infrastructure including two Central Processing Facilities (CPF) for separating crude oil from other impurities like sand, a gas to power plant, and a network of feeder pipelines.

A bilateral affair
Prior to the signing ceremony, President Museveni held bilateral talks with President Suluhu during her first foreign trip since assuming office last month following the death of President Magufuli.
Magufui was to sign the tripartite agreement on March 22, but initialling of the deal was deferred following his sudden demise.

President Suluhu, Tanzania’s former vice President who succeeded Magufuli, yesterday described the project as a “cornerstone” of partnership and relations between Uganda and Tanzania and called on the parties involved to expedite it.
The two principals, in a joint communique read by Foreign Affairs minister Sam Kutesa, acknowledged “the progress made in negotiation and finalisation of the HGA and related agreements” and directed the pipeline company to move forward with awarding of EPC contracts for construction.

The EACOP EPC tenders are divided in three lots; the Tanzanian pipeline segment will be constructed in two parts, to be awarded to separate contractors, and one lot for the Ugandan segment. Eighty per cent of the pipeline, which measures 1,147 kilometres, will be on the Tanzanian side, and it is estimated that 80 percent of the $3.8 project‘s capital expenditure will be spent in Tanzania.

In his speech yesterday, President Museveni revealed that he specifically set the new date as April 11, which is the year Tanzanian troops and Ugandan exiles ousted Idi Amin 44 years ago yesterday, for sentimental reasons.

“So today is a triple victory for Uganda and Tanzania; militarily, politically, and economically,” he said.

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