Uganda Opts for Tanzania Over Kenya for Important Pipeline

The writing has been on the wall for a few days, but today came the definite announcement: Uganda will partner with Tanzania, not Kenya, to build a pipeline and export its crude oil production.This is devastating news to the Kenyan government, which had hoped to use the same infrastructure to export its own oil production and will cost both Uganda and Kenya a lot of money:

Uganda will lose $300 million every year due to an increase of $4.07 in tariff per barrel, and Kenya will lose $250 million per year due to the increased tariff of $6.96 per barrel.

The reasons for Uganda’s decision are complex. Some concerns voiced about Kenya’s proposal relate to the difficult terrain in the Rift Valley, which can be avoided by passing through Tanzania’s Lake Victoria Basin. But the most important factor seems to have been limited confidence in Kenya’s government.

Kenya’s northern and Eastern provinces are notoriously insecure, due to intercommunal violence and conflicts in South Sudan, southern Ethiopia and in Somalia. Militants linked to Al Shabab regularly stage attacks with high casualty rates in areas that the pipeline will pass through, for example. The pipeline’s financing is still unclear and the designated export port at Lamu is still far away from completion.

In addition, Kenya’s delegation to the final negotiations seems to have inspired little confidence that they are on top of these problems in their Ugandan counterparts:

However, it has also emerged that the Kenyan officials participating in the Kampala talks may not have had all their facts right as they tried to address the concerns raised by Uganda over the northern route for the pipeline.

In contrast, Tanzania can offer an existing port, Tanga, and a very stable political environment. French oil giant Total has offered to finance the construction costs of the pipeline, as well as 40 percent of the planned Ugandan refinery at Hoima, while Tullow oil, the UK company which runs the Ugandan oil fields, seems to prefer the northern route through Kenya because it has interests along that pipeline corridor as well.

For the Kenyan government, this decision is about more than just the pipeline. The pipeline project is linked to a whole slew of infrastructure projects, ranging from a standard gauge railway to a high-capacity power transmission line linking Kenya and Ethiopia. Uganda’s decision will make it even harder to finance these ambitious projects and keep them on schedule.

From Uganda’s perspective, short-term profit seems to have trumped long-term decision making. President Museveni has recently been reelected in a contested election that turned out to be the most expensive in the country’s history, largely due to the plundering of state coffers to finance Museveni’s campaign and his outsized security apparatus. Uganda’s economic and human development performance has been lacking behind neighboring countries in recent years and the frustration among the overwhelmingly young population with the government is palatable. Uganda is broke and Museveni needs a lot of money quickly.

This is not to say that Ugandan worries about the Kenyan government’s reliability are unfounded. President Kenyatta and Vice President Ruto have presided over a disastrous military intervention in neighboring Somalia and have been unable to curb intercommunal violence, especially in the cost area.

From a regional point of view, the decision as both its pros and cons. On the one hand the competition between Tanzania and Kenya has a potential to produce future political rivalry. But as Ken Opalo points out

All else equal, this is probably a net positive development for the future of the East African Community (EAC). It is obviously a big financial and political loss for Kenya (and for that matter, Uganda) but it will dampen the idea of a two-speed EAC — with Kenya, Uganda, and Rwanda in the fast lane and Tanzania and Burundi in the slow lane.

Rich links: diamonds and bushmen in Botswana

As usual, the web’s most interesting reads:

Diamonds and Bushmen

Charity Survival International alleges that the government of Botswana systematically uses access to water as weapon to drive the country’s Bushmen out of their diamond rich reservation. The Independent

South Sudan plans allocation of new exploration blocks

The East African country will hold an auction to sell exploration licences to new oil blocks. If exploration proves successful, additional oil production could significantly enhance government income. Voice of America

Tullow Oil stops exploration in Kenya

After demonstrations in Kenya’s Turkana region by local communities demanding a greater share of jobs and higher income from Tullow’s operations, the British company has suspended all exploration activity in the area. Kenya hopes to significantly add to its natural resources portfolio with oil deposits currently appraised by Tullow. Sabahi | the Star | African Mining Brief

Zambia first cancels, then reinstates tax on unrefined copper exports

Only days Zambia has cancelled a 10% export tax on unrefined copper and other minerals, the country’s president Michael Sata has ordered his government to reintroduce the tax. Lifting the regulation had been a key demand of international mining firms, which argued that Zambia doesn’t have the necessary smelting capacity to process all ores in the country itself and that the additional tax would make operations uncompetitive. African Mining Brief

The future of Tanzania’s mining sector

Tanzania sports quite a wealth of various precious metals, gemstones, fossil fuels and other minerals. But falling gold prices and power challenges have made some investors weary. Mining Weekly | Daily News

Other stuff

  • How can African countries use their oil revenue for lasting development? the Guardian
  • Angola has opened a training centre for oil industry related professions: Mining Review
  • Women are breaking into the male dominated mining sector in Zimbabwe: IRIN