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Oil pipeline works to start from Tanzania

Oil pipeline works to start from Tanzania
14th April 2021 - 09:00am
Industry News
Oil

Source: The Daily Monitor

By Frederic Musisi

The construction of the proposed East African Crude Oil Pipeline (EACOP) will start on the Tanzanian side en route to Uganda, officials have revealed but without stating the start date.

Speaking yesterday at a press briefing on the oil agreements signed on Sunday, the Eacop company general manager, Mr Martin Tiffen announced that construction works on all the oil projects - Total E&P’s Tilenga in Nwoya and Buliisa districts, Cnooc’s Kingfisher in Hoima and Kikuube districts, and the pipeline - will move simultaneously.

“We are not retracting on the momentum,” Mr Tiffen said.

He explained that the pipeline would start in Tanzania because  the distance is longer moving into Uganda.
Although Mr Tiffen was unwilling to provide additional details,  sources told Daily Monitor that in Tanzania land acquisition is  much easier because government owns the land. In Uganda the airport is not yet ready meaning construction materials have to be  brought by road.

The Tanzanian pipeline section from the border town of Mutukula to Chongoleani terminal in Tanga at the Indian Ocean is 1,443km.  The Ugandan section from Hoima through 10 districts of Hoima, Kikuube, Kakumiro, Kyankwanzi, Mubende, Gomba, Ssembabule, Lwengo, Kyotera to Mutukula in Rakai is 296km.
 Mr Tiffen further explained that there are only few pending items in the way of starting construction works, including government giving not to the Engineering, Procurement, and Construction (EPC) contracts, and signing of the Host Government Agreement (HGA) with the Tanzanian government “expected in the coming weeks.”  

Oil and gas companies often rely on EPC contractors for large-scale and long-term projects that require skilled labour and fine-tuned project management.  

The Tanzanian HGA was due for signing on Sunday but was delayed due to last minute changes in Tanzania’s shareholding in the EACOP. The new shareholding structure, as detailed in the Shareholders Agreement, which defines the rights and responsibilities of the shareholders in the pipeline company as signed on Sunday, is; Uganda through Unoc with 15 per cent, Total Holdings International B.V. with 62 per cent, Tanzania through its national oil company, TPDC, with 15 per cent, and Cnooc with 8 per cent.

“The Shareholders Agreement is significant because it has constituted the EACOP Company, and will now guide the funding of shareholding, finance structure and general governance of the company,” said Energy minister Goretti Kitutu.

The EACOP funded in debt-to-equity ratios of 60:40, is expected to cost $3.5b (Shs13trillion). Total Holdings International B.V, the majority shareholder and which is domiciled in the Netherlands, is so far mum on how it will raise its lion share of project finances.

However, at yesterday’s press conference, the Total E&P general manager, Pierre Jessua as well as Ms Kitutu and the Energy ministry Permanent Secretary Robert Kasande were upbeat about the Ugandan oil project progressing fast after Sunday’s signing of the three EACOP agreements.

“With these agreements in place, the oil companies and government will proceed with the approval and award of contracts to the main EPC contractors. This will enable the construction work for the projects to proceed.”

According to the Energy ministry, the development/construction phase is expected to generate 14,000 directs jobs, 45,000 indirect jobs by the contractors, and induced employment of another 105,000 people as a result of utilisation of other services by the oil and gas sector: 57 percent of these are expected to be Ugandans and would yield at least $48.5m (Shs175b) payments annually.

Contracts
Already, according to the ministry, contracts worth $167m (Shs604b), out of the $1.3b (approx. Shs4trillion) EPC contracts for the Tilenga and Kingfisher projects under review by the oil sector regulator—the Petroleum Authority, are to be awarded to Ugandan companies.  This is however, subject to approval by government and subsequent award by Total E&P and Cnooc.  

The ministry also expects that participating Ugandan enterprises in the provision of goods and services during the development/construction phase are expected rake in at least $4.2b (Shs15 trilliion), the equivalent of 28 per cent of the total expected investments of $15b (Shs54 trillion) by the oil companies over the next five years.

“This only accounts for 19 out of the over 30 work packages to be awarded by the licensees. However, it is important to note that there will be many more subcontracts given to Ugandan companies through subcontracting by the Level-1 contractors,” Ms Kitutu added.

Sunday’s signing ceremony at State House, Entebbe attended by Tanzanian President Samia Hassan  Suluhu, and the French oil giant Total SE chief executive Patrick Pouyanne, Ms Kitutu revealed marked commencement of the project “and there is no document that will be signed for, or called, “FID”.

“It is a demonstration of the commitment the respective governments and oil companies have for the projects.”

Other factors kept constant, commercial oil production is expected to start the earliest, 2025.