EACOP: Total's Bad Omen,Magufuli's nightmare

The three potential Routes to evacuate
 Ugandan crude oil

The French Oil major, Total Oil SPA's foray into East Africa's crude oil industry has run into a huge storm. In what looks like a bad Omen,   Total has stopped all activities to do with East Africa Crude Oil Pipeline.

This follows a double blow to Total SPA which owns 33 percent stake at Hoima Oil Wells in Uganda. The firm was to buy a 22 percent stake from its partner Tullow for $900 million. However, the deal has collapsed following a disagreement with the government over Capital gains tax.

The death of the buy-out deal left the construction of 1450KM  East Africa Crude Oil Pipeline, EACOP, from Hoima to Tanga Port in Tanzania, which was connected to the sale, in a limbo. That Total Oil SPA has abandoned the project, putting its implementation in doubt is a Bad Omen for the French Oil major.

 Total had gunned for a majority stake at Uganda’s crude oil Wells through a buy-out of 22 percent of Tullow’s stake. This would have made Total SA the majority shareholder with 55 percent stake the lead implementer of the Crude Pipeline project. Now that the sale has failed-at least for now- and Tullow is firmly back at Hoima oil fields, EACOP is in jeopardy.

   

The collapse of the deal is a nightmare for Tanzania's President John Magufuli. He viciously yanked the Pipeline from Kenya by deceit. But he is an angry man. So frustrated the is he, that he publicly asked his Ugandan counterpart, Yoweri Museveni, to dismiss the Commissioner General of Uganda Revenue Authority. A Tanzania publication, www.thecitizen.co.tz quoted him as boasting that he has “dismissed six- Commissioners General in three and a half years.” Magufuli could not see why his Ugandan counterpart cannot do the same.

He has every reason to be frustrated: A large proportion, 85 percent, of the East Africa Crude Oil Pipeline, passes through Tanzania and she had lined up a significant number of local contractors to work in the US$5.5 billion Project. Now with the disagreement, all these hopes could evaporate. Not only the contracts but also the $12 barrel transport fee is also at stake. The relatively idle Tanga Port is also at risk.

 Tullow, which opposes the Tanzanian route, could kill it, choosing its preferred route, through Kenya.  Also, Read http://eaers.blogspot.com/2018/01/will-totals-entry-into-kenya-kill-hoima.html  

 Total SPA has made a number of strategic blunders in East Africa that won her more enemies than friends, especially in Kenya.  First, it engineered the re-routing of the Oil Pipeline from  Kenya based on a flimsy feasibility study that bad-mouthed Kenya.  

 Also, Read http://eaers.blogspot.com/2017/02/hoima-tanga-oil-pipeline-was-tanzania.html.

The second blunder was the announcement by its CEO, Patrick Pouyanne. Soon after the purchase of the 25 percent stake held by MAERSK in Turkana Basin in Kenya in August last year, he announced that would lobby Kenya to ship its oil through Tanzania’s Port of Tanga.

Lapsset Corridor: Lamu Port no longer a
proposal but a reality

That almost torpedoed her acquisition and she had to beat a hasty retreat, supporting Kenya’s decision to evacuate her oil through the Lamu Port.   

The failure to secure deals in Uganda is a bad omen for Total Oil SPA for it gives Tullow a major stake in the Crude Oil sector in East Africa. Tullow Oil Plc favors the Kenyan route to the New Lamu Port.

 Now, the failure of the Ugandan deal gives her the muscle she needs to drive the Pipeline route her way. Therefore, the potential for the death of the Hoima-Tanga pipeline and return to the originally planned Hoima-Lokichar-Lamu port route is high. The Lamu Port is no longer a proposal for the first berth will become operational in a month’s time.

 There are compelling economic reasons for that potential shift: First the Hoima- Tanga Pipeline is the most expensive of the three alternative routes to ship Uganda’s crude oil. It will cost $5.5 billion compared to US$4.4 billion for the Hoima-Lokichar -Lamu route said a report on the local TV channel, www.citizentv.co.ke.

Further, a Joint venture Pipeline between Kenya and Uganda will see Uganda ship her Crude at $9 per barrel compared to $12 on the Tanzanian route.

And third, Tullow has no stake in Tanzania at all but has a stake in Kenya and Uganda being the firm that discovered Oil in the two countries. Should Total SA, insist on the Hoima- Tanga Route, being the minority shareholder in both Kenya and Ugandan Oil Wells, she could be forced to farm down, thus leaving East Africa.

Could Kenya have the last laugh on the Crude Oil Pipeline in East Africa? That looks likely.  Both Tullow Oil and Kenya government agree on the evacuation of Oil through the Lamu Port in Kenya. 

For Kenya, an Oil pipeline to Lamu is an integral part of the LAPSSET corridor and would brook no change. It is a developmental issue that cannot be compromised.

Two, Kenya is already ahead of Uganda in oil exports, having exported the first 200,000 barrels this month on an experimental basis. So Kenya is already ahead of Uganda in oil exports though Oil was discovered in Uganda earlier than in Kenya.

Three, Uganda’s interest is to export Oil and is likely to be impatient with prolonged negotiations which delay its plan to export oil by 2022. That plan is already scuttled by the disagreement in Kampala. Uganda is therefore likely to favor the line that exports oil sooner.

Given that Kenya is in agreement with the Oil partners on the implementation of the US$2.1 billion Lokichar-Lamu pipeline of which Tullow is the lead implementer,  Uganda is likely to dump Tanzania. That would give Kenya the last laugh, analysts say.