Why Ugandan oil pipeline may delay
Uganda said investors in its planned crude oil pipeline want a higher tariff than originally agreed, raising doubts over its targeted date for production to start.
In 2016 landlocked Uganda picked a route through Tanzania to the country’s Indian Ocean port of Tanga for the pipeline to transport crude reserves from fields in its west near the border with the Democratic Republic of Congo. Crude reserves are estimated at 6.5 billion barrels. The route, Ugandan officials said at the time, was chosen on condition that the transit tariff would be capped at $12.20 per barrel shipped through the pipeline.
Robert Kasande, permanent secretary for the ministry of energy and mineral development told Reuters investors in the pipeline now wanted a higher tariff.
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“Yes, they want it (tariff) to exceed $12.20,” he said in an interview.
“Our quest is that we have the least cost tariff to be able to maximise on our crude sales, because if you charge me a lot to transport through the pipeline then I will sell nothing. So the discussions we are having are intended to exactly achieve that. A tariff that is affordable.”
Kasande did not say which firms they were negotiating with but France’s Total has previously indicated it wanted a stake in the project. Total co-owns Uganda’s fields together with China’s CNOOC and Britain’s Tullow Oil.
Uganda had aimed to commence commercial crude production in 2020 but delays caused by the slow implementation of infrastructure and disagreements with oil firms over taxes and field development strategy has made that target hard to achieve.
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Kasande said the government had expected a final investment decision (FID) for both the fields and the pipeline to be taken by the end of this year but this target was now unachievable after the demands for a renegotiation of the pipeline tariff.
The FIDs for both projects were now expected around June 2019, he said.
And because of negotiations over the tariff, a new date for commencement of crude production was now uncertain. “The new date will be determined after we have taken the final investment decision.”
Asked whether the government was concerned by potential delays to the start of production, he said: “of course, if we can’t close the agreements and take the final investment decisions the timelines begin to slip.”
The pipeline, described as the world’s longest electrically-heated pipeline, will cost $3.5 billion. Uganda’s Stanbic Bank Uganda, lead arranger for the project’s debt component of $2.5 billion said last month it expects that deal to reach financial close in June next year.
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