Uganda to use revenue from oil to fund SGR

President Yoweri Museveni of Uganda, Chinese Premier Li Keqiang, Kenya’s President Uhuru Kenyatta and Rwanda’s President Paul Kagame during the signing of the Standard Gauge Railway Agreement in Nairobi. PHOTO | FILE | AFP 

By A JOINT REPORT, The EastAfrican

In Summary

Cargo by rail

• Ugandan junior minister for Works John Byabagambi said that Kenya, Rwanda, South Sudan and Uganda would soon sign a protocol requiring all heavy duty cargo to be transported exclusively by rail between Mombasa and the capitals of the four countries.
• Uganda Railways MD Charles Kateba said Uganda was pushing RVR to re-invest in the 500km Tororo-Pakwach line, a key carrier of consignments such as cement from Kenya to South Sudan. RVR has recently invested in rolling stock and track improvement in a bid to increase volumes and speed and achieve its concession target of moving 10 per cent of cargo from Mombasa.
• Ugandan shareholder in RVR, Charles Mbire said during the launch of 20 new locomotives in Kampala. Mr Mbire said there had been a 40 per cent increase in cargo carried between Mombasa and Kampala this year compared to compared 2013 while transit time had been reduced to 3.7 days.
• Stuart Mwesigwa, the Business Development Manager at East African Roofings said RVR was now delivering 7000 tonnes of raw materials per month up from 2000 tonnes a few months ago.

Uganda has hinted that it could use oil revenues to fund its standard gauge railway (SGR). The country expects to receive more than $2 billion a year in oil revenues once production of an estimated 2.5 billion barrels of oil starts in three years.

Speaking on the sidelines of an African investment conference in London, Uganda’s President Yoweri Museveni said that using the oil revenues would be a viable option if funding from China does not come through.

“We are seeing the production starting in 2017. We will use the proceeds from the project to deal with these projects. With or without China, the proceeds from the future oil exports will be used to finance the $8 billion railway,” President Museveni said.

China is helping build the Kenya section of the railway and Uganda believes a bilateral loan would be cheaper than tapping into international markets.

Uganda’s railway project has been hit by procurement issues, with the Contracts Committee of the Ministry of Works refusing to let civil contractor China Harbour and Engineering Works (CHEC) handle the works over alleged non-compliance with procurement regulations.

Early this month, several legislators from Uganda’s parliament wrote to the China Exim Bank urging it not to extend a $7.9 billion loan to CHEC. The legislators argue that detailed technical designs were not presented to justify the price, which is $2 billion higher than what rival China Civil Engineering Construction Corporation (CCECC) bid.

The Uganda government terminated its memorandum of understanding for the project with CCECC without giving any explanation. While launching the SGR project early this month, President Museveni said Uganda would sign the contract with CHEC and seek funding later.

“We have linked up with CHEC, which has good experience in constructing railways, bridges and harbours and it will be their job to source for the money, a loan which we shall pay back,” he said.

READ: Museveni launches SGR amid controversy over $8b contract

Uganda, Kenya, Rwanda and South Sudan jointly embarked on building the new railway line to ease transport within the region and provide an outlet for oil fields in Uganda, South Sudan and northern Kenya.

Kenya’s SGR project, which will cost $5 billion, is set to start mid next month with completion targeted for 2017. However, the project suffered a setback on Thursday after the High Court halted construction of a section running through Kibwezi constituency in Makueni County until a dispute over compulsory acquisition of land for the project is determined.

The same day, an update submitted to President Uhuru Kenyatta by Transport Cabinet Secretary Michael Kamau showed that landowners had been compensated for 158 kilometres of the project. Another 133 kilometres had been handed over by the Kenya Wildlife Service, leaving 142 kilometres yet to be acquired, a statement from the Presidential Strategic Communications Unit said.

Rwanda is expected to contribute funding for the Kigali-Kampala segment, which is estimated to cost $1.2 billion. Studies on the Kampala-Kigali segment started in July this year and are expected to be complete by July 2015. 

Once complete, the 2,000 kilometre line which will run from Mombasa, through Kampala to Kigali is expected to cost Kenya, Uganda and Rwanda $13.5 billion in total.

Uganda struck commercial oil reserves in 2006 but production start dates have repeatedly been postponed as the country struggles to put in place laws on this sector. The government is currently building a $4.6 billion oil refinery in Kabale-Buseruka, to be commissioned in 2015

READ: Uganda’s mega projects key to growth but spark renewed debt fears

Uganda has also been at loggerheads with Tullow Oil, one of the oil firms, over whether to refine the crude in Uganda. The country’s current commercially viable reserves of oil have reached 1.4 billion barrels and the discovery of oil in Kenya has made building a pipeline across both states more viable as it will help the landlocked nation transport its oil via the Mombasa port.

A consultant to conduct a feasibility study for the 1,300 kilometre crude oil pipeline from Hoima to Lamu is expected to be appointed next month. The contractor will be expected to complete the assessment in five months. The pipeline is estimated to cost $4 billion.  

Uganda is also in the final stages of selecting a lead investor for the Hoima refinery which is expected to cost $2.5 billion.
State Minister for Mineral Development Peter Lokeris said RT-Global Resources of Russia and SK Group of Korea were competing for the role with the winner expected to be announced before the turn of the year.

The refinery was initially expected to handle 120,000 BDP but was scaled down to 30,000 bdp, rising to 60,000 bdp later, after its viability was questioned by Tullow Oil and other prospecting firms.

Reported by Allan Olingo, Michael Wakabi and Kennedy Senelwa