The 784-km-long 12-in.-dia Eldoret-Kampala-Kigali pipeline will replace road tankers as the main means of transporting fuel products to Uganda, Kigali, Burundi and DRC. The countries have advertised for expression of interest from potential contractors after the initial 2007 contract to Libya’s Tamoil was terminated in 2012 for alleged nonperformance of the contract.
“While it is critical that a crude-oil pipeline is constructed as one of the options of monetizing Uganda and Kenya’s discovered hydrocarbons, it is not yet very clear what impact the falling crude oil prices, waxy nature of the crude oil, an uncertain taxation environment and potential right of way issues would have on its viability,” said Denis Kakembo, Senior Tax Manager Deloitte East Africa.
He said the waxy nature of the crude oil means “the pipeline has got to be heated, which would increase the initial construction costs and subsequent maintenance and operational costs.”
“An uncertain taxation environment for pipelines in East Africa, unresolved transit fees that Kenya will seek to levy on oil passing through its territory as well as the anticipated challenges in obtaining the right-of-way for the pipeline heighten the risks associated with this project,” he said.
“These risks, unless mitigated, will build into the cost of capital, meaning the pipeline investor would require a significantly high return to justify investment in the pipeline project.”
He said East Africa region faces the challenge of lack of the required technical skills to construct the planned 1,300-km pipeline unless the countries respond by training “local masons, welders and fabricators who will be required for this project if local content initiatives will prove meaningful and not a stumbling block to the project.”
The pipeline projects, says Mahandra Rooplall a member of the energy consulting team of South Africa-based firm ARRUP, must also overcome the risks of securing land for the pipeline as well as delays in permitting approvals, because many of the project involve more than one province or country with varying approval procedures.