By Chiru Nyagah
Bolstered by significant oil discoveries as well as a growing investor confidence in the East African Region, the Governments of Kenya, Uganda and Tanzania have deemed the time ripe to embark on multi-billion dollar crude oil pipeline projects.
Kenya envisages a US$1 billion 821 km pipeline to transport approximately 80,000 barrels of oil per day from the Lokichar oilfields in Northern Kenya to the Port of Lamu. The Government has in the meantime embarked on an early oil export project utilising road transportation. But it is the East African Crude Oil Pipeline (EACOP) that this article will touch on due to its trans-boundary nature.
EACOP is a 1,445km long export pipeline transporting crude oil from Hoima in Uganda to the Tanga Port of Tanzania, and which is estimated to cost approximately US$3.5 billion. It is noteworthy that once completed, EACOP will be the world’s longest heated oil pipeline. More importantly, it will serve the function of a transit pipeline since it will cross a sovereign territory, thereby acting as a corridor between the Ugandan producer and the overseas consumer. Whilst it is expected to lead to Foreign Direct Investment (FDI) of 60% for the host states which some would argue makes it a bankable project, it is also important to be cognisant of the challenges that a transit pipeline like itself can present to the players involved.
The issues discussed herein call for robust, watertight agreements between host states and investors.Uganda and Tanzania signed an inter-governmental agreement (IGA) in 2017 to lay the foundation for the EACOP Project, and are currently finalising the Host Government Agreement (HGA) so as to reach a Final Investment Decision (FID) by mid this year. It is notable that the two states recently agreed to submit arbitration disputes to London, because finding a neutral arbitration jurisdiction gives parties confidence that the dispute resolution process will be fair. It is hoped that other sticky matters like an appropriate fiscal regime (tax) and transit tariffs will be resolved in the coming weeks.
The successful completion of EACOP will benefit the region in many ways. Not only will it put East Africa on the map, it will also provide jobs during the construction phase of the pipeline and offer opportunities to several players at various stages of the project.A number of insurance companies in Tanzania have already formed a consortium to raise adequate funds to underwrite oil and gas risks. This project also gives banks in the region an opportunity to provide financing either on their own or through syndicated loans.We must therefore applaud our member states for embarking on their respective mammoth projects (including those that are not mentioned in this article), particularly where the investment (social, financial) is considerable, and where the impact of the investment on their respective countries and the East African region as a whole is likely to be positive and significant.
The author is an oil and gas and energy lawyer. Her Masters thesis paper focused on oil and gas pipelines and the underlying legal and regulatory framework. Chiru can be reached via email on email@example.com.