The decision by investors to sink money into the proposed Kenya or Uganda crude oil pipeline will depend on how risk factors will be addressed, economists at pan-African lender, Ecobank, have said.
The economists, in an outlook report, see the size of reserves, net present value of the reserves, the cost of building pipelines, field development costs and the stake the government will take as major factors likely to shape investment decision.
“The engagement of the government has been mixed and it is tricky. If you ever try to build a pipeline, you’ve got to bring everyone on board,” Ecobank’s head of research Edward George said. “Naturally, we have rivalry intentions between Kenya and Uganda...that’s very difficult in terms of investor: how do you balance?”
Kenya decided to continue with plans to build a crude oil pipeline from oilfields in south Turkana to the proposed Lamu port at an estimated cost of $2.1 billion (about Sh217.08 billion). This was after Uganda in April 2016 pulled out of the initial plan to jointly build the pipeline from Hoima oilfields to Lamu via Lokichar at an estimated cost of $5 billion (about Sh516.85 billion).
Uganda opted for connection to Tanga port in Tanzania at an estimated cost of $4 billion (Sh413.48 billion), largely citing insecurity in northern Kenya and land compensation concerns.
“Uganda’s pipeline
is probably more economic, but Tullow and its partners have various options in Kenya,” Goerge said. “They could rediscover more reserves and monetise these for other companies via the pipeline, link pipeline to South Sudan and Ethiopia or re-establish pipeline link with Uganda.”
