EAC heads of State meetings critical for petroleum industry, investors

Design of the first three berths of Lamu Port. Routing a crude oil pipeline through the northern parts of Kenya to Lamu will reinstate the initial justification for the Lapsset corridor petroleum projects, which were becoming uncertain. Photo/File 

By George Wachira

 

In Summary

• If the momentum created by the three heads of state in Kampala is maintained, the northern corridor partner states will be on a speedy economic take-off. Such meetings provide critical political and strategic direction, and reduce guesswork by investors.

The meeting in Kampala last week by Uganda, Rwanda and Kenya heads of state provided much needed political and strategic direction on key infrastructure issues that technocrats can now work on.

It is not always easy for the full EAC summit to drive regional infrastructure harmonisation because member states appear to have different developmental priorities and sometimes competing interests.

However, Kenya and Uganda have a linkage that is both natural and of mutual infrastructure and business interests. By geographical extension Rwanda and eastern DRC also share in these interests.

Three petroleum infrastructure projects that received support at the Kampala meeting are particularly important for the emergent regional oil industry. These are the proposed refinery at Hoima in Uganda, the Eldoret-Kampala-Kigali products pipeline and the crude oil export pipeline from Lake Albert to Lamu.

The three projects are especially important for Uganda which has already quantified its exploitable oil at between 200,000-250,000 barrels per day (bpd).

It now appears confirmed that by 2017/19, Uganda will have a refinery with a 60,000 bpd capacity.

Support for the Uganda refinery from Kenya and Rwanda expands its products demand base and strengthens its economic justification. Uganda has often suggested intra-state equity ownership of the refinery, in addition to public/private ownership arrangements.

The proposed Eldoret-Kampala-Kigali pipeline has to be viewed jointly with the refinery project. The line will provide flexibility for supplying the Great Lakes region with products from Kenya and/or from the Uganda refinery.

The design of the line between Eldoret and Kampala will pump products either direction (reverse flow) depending on products supply/demand/costs considerations.

If products costs on the Uganda side are lower than import costs through Mombasa then Western Kenya may opt to source from Uganda.

A Kigali destination for the pipeline will allow Rwanda to have options for Uganda or Kenya-sourced products depending on costs. However, to the pipeline investors, increased discretion on product sourcing presents investment risks unless there are volume/revenue guarantees.

The pipeline project is currently on tender on the basis of a BOT (build own transfer) concession investment structure. However, from the Kampala discussions it looks as if the investment model is yet to be finalised.

What are the implications of the Uganda refinery on Kenyan products supply infrastructure (Mombasa refinery, imports terminals, Kenya Pipeline Company)?

I will be surprised if Kenya Pipeline Company (KPC) has not already taken into account the eventuality of a Uganda refinery in their investment plans, as the refinery will reduce usage of the line from Mombasa. Imports storage facilities in Mombasa may also be less used due to reduced transit of products to Uganda and countries further west.

The Mombasa refinery (KPRL) threats are not from Uganda, but from competing imports of products. In 2008 an EAC report recommended setting up of a refinery in Uganda and upgrading KPRL.