Uganda In A Dilemma Whether To Pass Oil Pipeline Through Kenya Or Tanzania

Uganda discovered crude oil within its boundary back in 2006 through an initiative led by Tullow Oil Plc. and its partners. The site is estimated by the U.S. Energy Information Administration to hold about 6.5 billion barrels of oil.

When the country starts to mine the crude oil, it is bound to face some logistics challenges. The greatest of which is transportation, as water transport is the cheapest means of transporting petroleum. Uganda’s main problem is that the country is a landlocked country, with the nearest water gateway to the world market being the Indian Ocean. The country has to pass its commodities through its neighbors Kenya or Tanzania, to access the India Ocean waterways.

While Uganda has historically had a cordial relationship with Kenya and heavily depend on Kenya’s railway and pipeline to received and send its imports and exports. The recent insecurity development in Kenya has made Uganda want to consider its options.

Uganda is currently contemplating laying its pipeline through Kenya to the coastal cities of Lamu and Mombasa or through Tanzania to the coastal city of Tanga. According to the official statement, the country is contemplating laying a pipeline from Hoima District in Uganda to Lamu, Kenya; a distance of about 1,500 kilometers (930 miles).

The main challenge with that route is that the pipeline will pass through Lokichar basin in Northern Kenya. Critics of that route argue there are security concerns in that region posed by bandits and the Islamist militants who predominantly lay siege in those areas.

Ahmed Salim, a senior associate at New York advisory firm Teneo Intelligence, is quoted by Bloomberg having said:

“Given the current oil-price environment, it would be wise on part of the Ugandan government to make sure that any finalized agreement will be the most cost effective in a period where fiscal prudence should be a priority.

We can assume that the Ugandan government is playing a little bit of regional politics.” Given the news that Uganda is contemplating passing its pipeline through Tanzania will not be something Kenya would want to hear. The Ugandan President and Kenyan President made an agreement back in August for the pipeline to be laid through Kenya at an estimated cost of $4 billion, but subject to financing and security guarantees.

Bloomberg also says that Uganda has already signed a memorandum of understanding with the Tanzania Petroleum Development Corp and Total SA’s exploration and production arm. In the MOU, the parties will carry out studies and come up with an alternative route for the Ugandan pipeline to the Indian Ocean.

Uganda’s Energy Ministry in a statement published on Monday said, “The objective is to select a route that will result in the lowest unit transportation cost.”