THE KENYA – UGANDA OIL PIPELINE PROJECT

THE KENYA – UGANDA OIL PIPELINE PROJECT

byBen Twodo

MINISTRY OF ENERGY AND MINERAL DEVELOPMENT, UGANDA

Ministry of Energy and Mineral Development, UGANDA.

Kenya – Uganda Oil Pipeline Project

STRUCTURE1. Project Inception2. First Feasibility Study3. Complementary Study4. Highlights of the Report5. Ownership and Management6. Implementation7. Conclusion



INCEPTION OF THE PROJECT

A Memorandum of Understanding (MOU) between Kenya and Uganda signed in May 1995

A Joint Coordination Commission (JCC) established



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.



INCEPTION cont’d …

Agreed from start that the project be promoted and developed as a regional project.

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.



FIRST STUDY cont’d …

The study concluded that the project is feasible and viable.



THE SECOND/COMPLENTARY

STUDY

In 2001, a complementary study was commissioned to:oupdate the first study and reconfirm the pipeline as the least cost mode

oprepare documentation to invite bids from private sector investors



COMPLEMENTARY STUDY cont’d …

Study financed by the two Governments under the auspices of the JCC.

Study carried out by another international firm.



COMPLEMENTARY STUDY cont’d …

Report on Stage 1of the study submitted in Nov 2001.



HIGHLIGHTS OF THE REPORT

Market demandoPresent demand is about 580,000 m3 p.a.

oDemand grows at 3.5% – 5% p.a



HIGHLIGHTS cont’d …

Pipeline routeoPipeline 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)




oTotal pipeline length approximately 320 km




Pipeline sizeoAn 8 inch diameter pipeline recommended




Pipeline capacityoPumping flow rate of 168 m3 per hour

oAnnual capacity is 1,200,000 m3




No engineering design at this stage.



KAMPALA TERMINAL

A common user terminal to be located in Kampala

Terminal to be located east of the city



KAMPALA TERMINAL

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



KAMPALA TERMINAL cont’d …

Kampala terminal capacity to be 72,000 m3 comprising:

o7 productso4 interface tanks



KAMPALA TERMINAL cont’d …

Tanks Configuration o MPS - 2 tanks - 32,500 m3

o BIK - 2 tanks - 5,654 m3

o JET - 2 tanks - 10,544 m3

o AGO - 2 tanks - 22,570 m3

o Interface - 4 tanks 904 m3



CAPITAL COST ESTIMATES

Cost estimates for basic development - $96.9 million



CAPITAL COSTS cont’d …

oDesign, engineering, supervision - $7.2 m

oPreliminaries and general costs - $5.4 m

oPipe laying - $42.2 moEldoret terminal - $4.6 m



CAPITAL COSTS cont’d …

oSindendet pump station - $3.4 m

o Intermediate pump station - $3.4 m

oKampala terminal cost - $30.7 m



CAPITAL COSTS cont’d …Additional $12 million for:

o Improvement of pumping capacity at Burnt Forest in Kenya – $5.1 m



CAPITAL COSTS cont’d …oT-off to government’s storage depot in Jinja; additional facilities - $2.1 m

oRe-locating terminal west of Kampala - $4.7 m



ECONOMICS

Current truck transportation rates vary $38 - $42 per m3



ECONOMICS

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

The IRR in all cases showed the project to be viable; 18% - 22%



GOVERNMENTS POSITION

The complementary study report was accepted by JCC in 2001

The JCC recommended to the two Governments to implement the project.



GOVERNMENTS POSITION cont’d …

Extension to be independent of existing Mombasa – Eldoret pipeline (owned and managed by GoK through the Kenya Pipeline Company).



GOVERNMENTS’ POSITION cont’d …

A legal framework be developed immediately by the two governments:oBilateral/International agreements defining legal, commercial, financial arrangements.




oHost country laws on taxation, transportation, customs, etc.

oCommercial agreements – government/company or inter company.




Engineering design be undertaken parallel to identification of private sector investoroTOR for consultancy being drafted




Environment impact assessment study be carried out parallel to identification of private sector investor

oTOR being drafted



OWNERSHIP AND MANAGEMENT

Ownership to be public-private partnership on boo terms

oPrivate investor51%oGovernments 49%

(24.5% each)



OWNERSHIP & MANAGEMENT cont’d …

Private sector to manage and operate the pipeline



OWNERSHIP/MANAGEMENT cont’d …

Governments’ shares to be offloaded to private investors in future

The two pipelines to be unified in future and operated as a single entity; Msa – Kla.



PROJECT FINANCING

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

Oil marketing companies willing to sign agreements with promoters.



WAY FORWARD

Prepare documentation to select private partner for the project

The selection will be through competitive process



IMPLEMENTATION TIMETABLE

Prepare documentation for bidding - 2 months

Open invitation for bidding- 6 months

Evaluation, negotiations and contract signing - 6 months




Legal framework - 3 monthsEngineering design - 4 monthsEIA - 4 months

These to run concurrent with investor selection




Procure, Construction and Commissioning 27 – 32 months



CONCLUSION

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

Ready market existsAttractive rates of return

assured.



CONCLUSION

The project classified as high priority in both countries.



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




Many financial institutions have indicated interest to support the projectoWorld Bank Group, EIB, AfDB, PTA Bank, EADB, etc.

oBilateral sources and finance houses, etc.




A number of investors have expressed interest in the project



COME, LETS DO BUSINESS TOGETHER

THANK YOU!

THE KENYA – UGANDA OIL PIPELINE PROJECT

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