HomeBusinessPoliticking may delay EAC’s dream of oil extraction-Experts

Politicking may delay EAC’s dream of oil extraction-Experts

By Jean Gatera

Oil prices have been hard-hit by Covid-19.

Experts in the petroleum industry have aired concerns related to the likely delays in extraction of oil in East Africa unlike the discovered enormous wells in the region.

The pundits say, indecisive leadership and politicking by some regional leaders have not only affected the process but may as well see some of the projects in the pipeline overturned.

“Unless companies across East Africa come together and leverage on their respective expertise and experience to work together, there is a fear that upcoming oil and gas projects will ultimately go to foreign contractors and deprive local businesses from tremendous growth opportunities,” a local newspaper recently reported.

The development comes in a wake of world oil prices crashing due to worldwide lockdowns.
Much of the concerns centered on the oil pipeline that was supposed to connect the oil fields to exit ports.

“There is enough oil wells in the region and indeed countries need to tap into them and even construct refineries to process crude oil into petroleum products. However, recent developments in the oil market and geopolitical arrangements may contradict these efforts,” said a researcher.

Uganda has lately been at the center of oil exploration but experts say, realizing the extraction may face more challenges than what is on the ground so far.

“There has been a change of heart in where the pipeline should pass to connect to the sea for it to be exported to refineries. Some of these decisions are politically motivated,” he said.

A pipeline was initially planned to pass through Kenya but Uganda opted to build the line through Tanzania instead, despite the fact that the Kenyan side had already prepared the ground with massive relocations.

No real reason was given for the sudden change by Kampala but Political analysts suggest that the change was a political decision taken to secure influence in the East African Community.

The Tanzanian route also came with other challenges as well. The African Development Bank (AfDB) which was being looked at as the financer, announced last month that it is not planning any financial support for the crude oil pipeline project between Uganda and Tanzania. “The AfDB categorically refutes allegations of financial support for an East African pipeline project. The NEPAD Infrastructure Project Preparation Facility (IPPF) has not provided financing to any private sector company for oil and gas pipeline projects in East Africa,” the financial institution said in a statement issued on April 20, 2020.

The East African Crude Oil Pipeline (EACOP) project, involving the governments of Uganda and Tanzania, involves the construction of a 1,443 kilometre pipeline (296 km of which will be in Uganda) to export crude oil from Lake Albert to the port of Tanga in Tanzania for export to international markets. Stanbic of Uganda and Sumitomo Mitsui of Japan are the official financial advisers to the project and debt financing for the pipeline is expected to amount to about $2.5 billion. The Eacop is expected to be the longest heated pipeline in the world, transporting about 216,000 barrels of crude oil per day (10.9 million tons per year) through densely populated districts in both countries.

Analysts say that Uganda’s opted Tanzania route, a joint project with French oil giant Total, is also hampered by several issues.

“There were legal issues from the numerous overlapping exploration licenses that had to be addressed. For instance hiccups in the transfer of oil exploration licenses Uganda initially granted to Tullow Oil to Total was problematic as the Ugandan tax collectors were on the lookout to tax any such transaction,” said a petroleum expert.

In a related development, President Museveni recently made a surprise announcement that indicated yet another change of plan.

Speaking during an interview with NBS TV, the President said that did not need a pipeline after-all.

Museveni claimed that the pipeline project was, in fact, “a way to share the speculative oil proceeds with Tanzania”.

He said regional demand was sufficient for Uganda to sell its oil, and that the only reason for the pipeline was “for Tanzania to get some oil money.” With current oil prices fluctuating between $30 per Barrel to below 0, even basic exploration is threatened as returns on capital employed get slimmer and slimmer.

Evidently, the window of opportunity to exploit is quickly closing.

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