NOT AN OFFICIAL UNCTAD RECORD

THE KENYA – UGANDA OIL PIPELINE PROJECT

by Ben Twodo MINISTRY OF ENERGY AND MINERAL DEVELOPMENT, UGANDA

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STRUCTURE Project Inception First Feasibility Study Complementary Study Highlights of the Report Ownership and Management Implementation Conclusion

Ministry of Energy and Mineral Development, UGANDA.

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INCEPTION OF THE PROJECT

A Memorandum of Understanding (MOU) between Kenya and Uganda signed in May 1995 A Joint Coordination Commission (JCC) established

Ministry of Energy and Mineral Development, UGANDA.

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INCEPTION cont’d …  The TOR of the JCC initially to coordinate the feasibility study for the pipeline extension.

 TOR expanded in Oct 2000 to include implementation of the entire project.

Ministry of Energy and Mineral Development, UGANDA.

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INCEPTION cont’d …  Agreed from start that the project be promoted and developed as a regional project.

Ministry of Energy and Mineral Development, UGANDA.

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THE FIRST FEASIBILITY STUDY

 The European Investment Bank (EIB) financed the first feasibility study.

FIRST STUDY cont’d …  An international consultancy firm contracted to undertake a feasibility study in 1997.

 The consultant conducted the study in 1998 and presented its report in May 1999.

Ministry of Energy and Mineral Development, UGANDA.

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FIRST STUDY cont’d …  The study concluded that the project is feasible and viable.

Ministry of Energy and Mineral Development, UGANDA.

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THE SECOND/COMPLENTARY STUDY  In 2001, a complementary study was commissioned to: o o update the first study and reconfirm the pipeline as the least cost mode prepare documentation to invite bids from private sector investors

Ministry of Energy and Mineral Development, UGANDA.

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COMPLEMENTARY STUDY cont’d …  Study financed by the two Governments under the auspices of the JCC.

 Study carried out by another international firm.

Ministry of Energy and Mineral Development, UGANDA.

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COMPLEMENTARY STUDY cont’d …  Report on Stage 1 of the study submitted in Nov 2001.

Ministry of Energy and Mineral Development, UGANDA.

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HIGHLIGHTS OF THE REPORT  Market demand o Present demand is about 580,000 m 3 p.a.

o Demand grows at 3.5% – 5% p.a

Ministry of Energy and Mineral Development, UGANDA.

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HIGHLIGHTS cont’d …  Pipeline route o Pipeline to be extended from Eldoret in Kenya, through Malaba on the border (110 km), through Jinja (130 km from Malaba) then to Kampala (80 km)

Ministry of Energy and Mineral Development, UGANDA.

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HIGHLIGHTS cont’d … o o Kisumu – Malaba is second option Total pipeline length approximately 320 km

Ministry of Energy and Mineral Development, UGANDA.

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HIGHLIGHTS cont’d …  Pipeline size o An 8 inch diameter pipeline recommended

Ministry of Energy and Mineral Development, UGANDA.

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HIGHLIGHTS cont’d …  Flow rate and capacity o Pumping flow rate of 168 m 3 hour per o Annual capacity is 1,200,000 m 3

Ministry of Energy and Mineral Development, UGANDA.

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HIGHLIGHTS cont’d …  No engineering design at this stage.

Ministry of Energy and Mineral Development, UGANDA.

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KAMPALA TERMINAL  A common user terminal to be located in Kampala  Terminal to be located east of the city

Ministry of Energy and Mineral Development, UGANDA.

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KAMPALA TERMINAL  Ministry prefers location west of the city to lessen truck traffic through city

Ministry of Energy and Mineral Development, UGANDA.

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KAMPALA TERMINAL cont’d …  Kampala terminal capacity to be 72,000 m 3 comprising: o 7 products o 4 interface tanks

Ministry of Energy and Mineral Development, UGANDA.

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KAMPALA TERMINAL cont’d …  Tanks Configuration o MPS - 2 tanks 32,500 m 3 o o o o BIK - 2 tanks JET - 2 tanks AGO - 2 tanks Interface - 4 tanks 5,654 m 3 10,544 m 3 22,570 m 3 904 m 3

Ministry of Energy and Mineral Development, UGANDA.

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CAPITAL COST ESTIMATES  Cost estimates for basic development - $96.9 million

Ministry of Energy and Mineral Development, UGANDA.

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CAPITAL COSTS cont’d … o Design, engineering, supervision $7.2 m o Preliminaries and general costs $5.4 m o Pipe laying $42.2 m o Eldoret terminal $4.6 m

Ministry of Energy and Mineral Development, UGANDA.

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CAPITAL COSTS cont’d … o Sindendet pump station - $3.4 m o Intermediate pump station - $3.4 m o Kampala terminal cost - $30.7 m

Ministry of Energy and Mineral Development, UGANDA.

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CAPITAL COSTS cont’d …  Additional $12 million for: o Improvement of pumping capacity at Burnt Forest in Kenya – $5.1 m

Ministry of Energy and Mineral Development, UGANDA.

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CAPITAL COSTS cont’d … o T-off to government’s storage depot in Jinja; additional facilities - $2.1 m o Re-locating terminal west of Kampala - $4.7 m

Ministry of Energy and Mineral Development, UGANDA.

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ECONOMICS  Current truck transportation rates vary $40 - $42 per m 3

Ministry of Energy and Mineral Development, UGANDA.

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ECONOMICS  Viability of the project tested for various tariffs and investment configurations.

 The IRR in all cases showed the project to be viable; 18% 25%

Ministry of Energy and Mineral Development, UGANDA.

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GOVERNMENTS POSITION  The complementary study report was accepted by JCC in 2001  The Governments accepted JCC recommendation in 2003.

Ministry of Energy and Mineral Development, UGANDA.

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GOVERNMENTS POSITION cont’d …  Extension to be independent of existing Mombasa – Eldoret pipeline (owned and managed by GoK through the Kenya Pipeline Company).

Ministry of Energy and Mineral Development, UGANDA.

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GOVERNMENTS POSITION cont’d …  The two pipelines to be unified in future and operated as a single entity; Mombasa – Kampala.

Ministry of Energy and Mineral Development, UGANDA.

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OWNERSHIP AND MANAGEMENT  Ownership to be joint public private partnership o Private investor 51% o Governments 49% (24.5% each)

Ministry of Energy and Mineral Development, UGANDA.

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OWNERSHIP AND MANAGEMENT  Private sector partner to be selected through open competitive bidding process  The project to be implemented on BOOT terms.

Ministry of Energy and Mineral Development, UGANDA.

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OWNERSHIP & MANAGEMENT cont’d …  Private sector to manage and operate the pipeline

Ministry of Energy and Mineral Development, UGANDA.

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OWNERSHIP/MANAGEMENT cont’d …  Governments’ shares to be offloaded to private investors in future

Ministry of Energy and Mineral Development, UGANDA.

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LEGAL FRAMEWORK  A legal framework be developed immediately by the two governments: o Bilateral/International agreements defining legal, commercial, financial arrangements.

Ministry of Energy and Mineral Development, UGANDA.

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LEGAL FRAMEWORK cont’d … o Host country laws on taxation, transportation, customs, etc.

o Commercial agreements – government/company or inter company.

Ministry of Energy and Mineral Development, UGANDA.

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ENVIRONMENTAL IMPACT ASSESSMENT  Environment impact assessment study be carried out parallel to identification of private sector investor o TOR ready o Financing available

Ministry of Energy and Mineral Development, UGANDA.

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PROJECT FINANCING  Project financing to be used based on future stream of revenues.

 Oil marketing companies willing to sign agreements with promoters.

Ministry of Energy and Mineral Development, UGANDA.

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WAY FORWARD  Prepare documentation to select private partner for the project  The selection will be through competitive process

Ministry of Energy and Mineral Development, UGANDA.

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IMPLEMENTATION TIMETABLE  Expression of Interests 1½ months  Bidding - 3 months  Negotiations & contract - 1 month  Formation of JVC 1 month

Ministry of Energy and Mineral Development, UGANDA.

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IMPLEMENTATION TIMETABLE cont’d …  Legal framework  EIA 3 months 4 months These to run concurrent with investor selection

Ministry of Energy and Mineral Development, UGANDA.

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IMPLEMENTATION TIMETABLE cont’d …  Procure, Construction and Commissioning 27 – 32 months

Ministry of Energy and Mineral Development, UGANDA.

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CONCLUSION  The Kenya – Uganda oil pipeline project is feasible and viable.

 Ready market exists  Attractive rates of return assured.

Ministry of Energy and Mineral Development, UGANDA.

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CONCLUSION cont’d …  The project classified as high priority in both countries.

Ministry of Energy and Mineral Development, UGANDA.

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CONCLUSION cont’d …  The project to be implemented as a regional project in the spirit of East African Community (EAC), the New Partnership for Africa (NEPAD), etc

Ministry of Energy and Mineral Development, UGANDA.

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CONCLUSION cont’d …  Many financial institutions have indicated interest to support the project o World Bank Group, EIB, AfDB, PTA Bank, EADB, etc.

o Bilateral sources and finance houses, etc.

Ministry of Energy and Mineral Development, UGANDA.

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CONCLUSION cont’d …  A number of investors have expressed interest in the project

Ministry of Energy and Mineral Development, UGANDA.

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COME, LETS DO BUSINESS TOGETHER THANK YOU!

Ministry of Energy and Mineral Development, UGANDA.

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