In this article our East Africa Politics & Security author looks at the fast-moving developments for Uganda and Tanzania, but also the next steps of the two ‘main casualties’ of the decision, Kenya and Tullow Oil. The latter are now putting plans into place for developing a ‘Kenya-only’ solution, with rumours of involvement from the African Development Bank, China Exim Bank, and the IMF, as well as a possible enhanced role from Maersk.

The final announcement that Uganda’s pipeline would pass through Tanzania to the port of Tanga came as no great surprise in the end. Nevertheless, Kenyan officials had hoped for a last minute change of heart from the Yoweri Museveni administration. The decision, announced at the 13th Northern Corridor Infrastructure Summit in Kampala on Sunday 25 April, has reconfigured the geometry of the region’s petroleum industry.

Political timelines in each of the three countries provide incentives to get the projects off the ground – assuming that oil prices rise. The main casualties of course are Kenya and Tullow Oil and its joint venture partners in Kenya, which now have to develop Kenya-only solutions.

Tullow Oil, in its 26 April Trading Update, stated that it ‘will now work with the Government of Kenya and our partners on a range of options for the independent development of [Kenyan] resources including early production using existing infrastructure which would provide valuable reservoir data ahead of a full field development with an export pipeline.’

What this means is that Tullow Oil and partners have signed up to what Kenya describes as the Early Oil Pilot Scheme. This is the plan to evacuate by road and rail existing oil stocks, said by Tullow to be 68,000 barrels, and supplemented by production from further appraisal. Kenya’s timetable for this will be to have those barrels exported before August 2017, when the next national elections are scheduled.

This is the context in which Tullow Oil has raised its assessment of existing resources in the South Lokichar Basin to 750 million barrels, up from 650 million, with talk of a 1 billion barrel resource. None of this has yet been independently verified.

The next steps are unclear. Kenya’s Principal Secretary for Petroleum Andrew Kamau has bullishly said that there is interest from the African Development Bank (AfDB), China Exim Bank, and the International Monetary Fund (IMF) in funding the project. Kamau says that Front End Engineering and Design (FEED) study will be undertaken forthwith.

Just as challenging as finance will be project experience. None of the joint venture partners in Kenya have experience in undertaking such a project, and the lead partner, Tullow Oil, may find its position in any pipeline project diluted due to limited capital. We may therefore see an enhanced role for the more experienced Maersk Oil, the newest member of the joint venture.

For Uganda and Tanzania, things are now moving fast. Representatives from both governments as well as Total, Tullow Oil and CNOOC met in Dar es Salaam on 29 April. With Total providing the financing, the project will be private sector-led.

Yet though Total is now referred to as the Lead Sponsor, ownership structures have yet to be clarified. Reports in Uganda indicate that a Project Development Team is to be established with representatives from all parties, reporting to the Permanent Secretaries in the two countries, Fred KabagambeKaliisa in Uganda, and Justin Ntalikwa in Tanzania. Further meetings are expected in May in Uganda.

The governments have set an ambitious timeline, predicting project completion in 2020. This is highly unlikely. FEED and environmental studies have to be carried out for both the pipeline and the Ugandan oil fields. Delays can be expected on the Ugandan side in this regard, particularly in regard to acquisition of land for the pipeline wayleave. Land acquisition and related compensation problems are a perennial issue in Uganda. Each project is dealt with on a case by cases basis, with no regulations in place.

The final piece of the jigsaw, certainly from President Museveni’s point of view, is the oil refinery. It is over a year since a RT Global Resources-led consortium won the refinery construction tender, but talks are still dragging on. Sources in Kampala question whether the consortium has the requisite finance in place, while RT Global Resources themselves are not happy with the site, in particular the inclusion of an airstrip on an already restricted site. A more fundamental blockage is that the consortium is insisting on guaranteed 25 year supply from the companies. Only CNOOC has a production licence, which expires within 25 years. Total and Tullow Oil are still awaiting full licences, though an oil company source East Africa Politics & Security spoke to in Kampala before the Kampala Summit deal was announced says this is now just a matter of time. Commitments on extraction rates and local capacity building have been agreed with the two companies.

Finally, as part of the deal for the pipeline Tanzania has promised to take up its option of an 8% share in the project. Whether it will actually go ahead or not remains to be seen.