The Ugandan government is in a somewhat enviable position, primed to take advantage of competing interests in the region and exploit its own energy resources. The Tanzania Petroleum Development Corp. announced March 7 that it hoped to close negotiations with Uganda in August on a pipeline to export oil from Uganda's Lake Albert oil fields through Tanzania. The statement follows meetings between Tanzanian President John Magufuli and Ugandan President Yoweri Museveni on March 1, during which they initially agreed to build the pipeline together. It also comes after Uganda began tentative talks with Tanzania's regional rival, Kenya, to build a pipeline with similar goals through that country.
While the Tanzanian option has seen the most progress, the deal is far from finalized, and Kampala will try to pit Dodoma and Nairobi against each other to see which will offer the lowest transportation costs. In the longer term, the Tanzanian route is the more likely of the two to come to fruition since it covers the shortest distance, has the fewest security concerns and is backed by French oil company Total. But even under the most optimistic scenario, Uganda remains at least three years away from oil exports and a pipeline to transport them, and it probably will not begin exporting oil until the 2020s.
According to the deal between Tanzania and Uganda, their pipeline would cover 1,120 kilometers (696 miles), wrapping around the southern coast of Lake Victoria before heading to Tanga, Tanzania. The project would cost an estimated $4 billion and take three years to construct — an expensive endeavor, thanks to Uganda's waxy crude oil, which requires a heated pipeline to lower the oil's viscosity and facilitate transport.
Three oil companies are hoping to develop fields in Uganda: France's Total, Britain's Tullow Oil and China's CNOOC. Of the three, only CNOOC has been awarded a production license in Uganda. Though Total and Tullow Oil have both applied for licenses, the Ugandan government has yet to award them, arguing that it cannot do so until after the recent elections, which were held a few weeks ago. Uganda will likely begin licensing by the end of the year, especially if it closes a pipeline agreement.
The three companies have already completed most of the work leading up to their final investment decision. As of now, the total proposed field development could achieve production levels of 230,000 barrels per day, making Uganda the biggest oil producer in East Africa. But before these companies can decide whether they are willing to cover the relatively high cost of developing Uganda's fields, they need to know which export route Kampala will choose. Though the companies had hoped to have reached a decision by now, they will likely push it off until at least 2017, if not beyond. For now, the competition remains between Tanzania and Kenya, as Uganda uses both for its own benefit.
The Tanzania-Kenya Rivalry
Tanzania and Kenya are the two dominant economies in Africa's Great Lakes region and have been competing for influence — each vying to lead the East African Community — for decades. The major tool in their competition is developing competing infrastructure projects. For example, Kenya has proposed to expand its Northern Corridor route, extending rail and road links into Uganda to connect to the Kenyan port of Mombasa. Kenya has also proposed constructing the LAPSSET corridor, which would connect its port in Lamu to South Sudan and Ethiopia. Tanzania, for its part, wants to enlarge its Central Corridor route into Rwanda and Uganda and has increased trade on Lake Victoria so as to ship goods without going through Kenya.
Pipeline competition, then, is just another aspect of the broader competition between Dodoma and Nairobi. And hydrocarbons are important to Tanzania, Kenya and Uganda alike: In the future, the region could become a net energy exporter and one of the most important targets for development.
Even beyond their rivalry, Tanzania and Kenya have enough trouble getting their projects off the ground. The lingering question of export routes has caused numerous delays since field development proposals were submitted to Uganda beginning in 2013. And CNOOC has demurred since receiving its production contract because Tullow Oil and Total have been unable to proceed with their respective projects in the absence of production licenses.
East African Pipelines
As it stands, three pipeline routes have been proposed: two in Kenya and one in Tanzania.
One pipeline would traverse northern Kenya, ending at Lamu port. The Kenyan government and Tullow Oil support this path because it crosses the company's relatively small resources, which could also feed into the pipeline. The major concern from Total's perspective is instability in eastern Kenya, where al Shabaab frequently attacks security forces and civilians. If built, the pipeline will almost certainly become a prime target for the militant group.
The other proposed pipeline would run through southern and central Kenya to Mombasa port. Although Total initially supported this proposal, it is now the least likely to succeed thanks to the momentum and support behind Tanzania's Tanga route, agreed to March 7. Of the three options, the Tanga pipeline bears the lowest security risk and is backed by Total. Consequently, Uganda now supports this pipeline more actively.
Tanzania and Kenya both hope to gain high per-barrel transit fees on oil transported over their lands through the pipeline. But by putting Dodoma and Nairobi in direct competition with each other, Uganda has created a bidding war between the two to see whose fees will sink the lowest.
Uganda has apparently proceeded to develop pipelines in both countries as well. In August 2015, Museveni signed a memorandum of understanding with his Kenyan counterpart, Uhuru Kenyatta, on the pipeline through northern Kenya. Two months later, Uganda signed a similar memorandum of understanding with Total and Tanzania for the Tanga pipeline, claiming to seek the lowest-cost option to maximize revenue. The Uganda-Kenya deal envisions a transit fee ranging from $5 to $15.70 per barrel, prices that Tanzania appears to have beaten.
Still, Tanzania's agreement with Uganda is hardly set in stone. Uganda's Ministry of Energy and Mineral Development would neither confirm nor deny that the March 1 agreement between Magufuli and Museveni had been finalized. Meanwhile Kenya, which is unlikely to see its energy resources developed if the Tanzania route is chosen, will continue to try to counter the proposal. But regardless of Nairobi's efforts, the Tanzanian route remains the most likely to move forward because of Total's backing, which lends credence to future financing opportunities.
Even so, the Tanzania Petroleum Development Corp.'s timetable for finalizing the agreement by the end of August is overly optimistic, and Kenya knows it. Moreover, Uganda is dangerously close to seeing investor interest in its burgeoning oil industry wane. It must finalize its export route as quickly as possible so it can issue production licenses to companies that can then decide to begin development in 2017 or 2018. Kampala had originally hoped that it would start producing oil by 2016, but now 2019 or 2020 is looking like a more likely scenario — and one that will only occur if a single pipeline is agreed upon.