Kenya started talks with neighboring Uganda on the financing and construction of an oil pipeline that will link the two countries and ferry crude produced by companies including Tullow Oil Plc, the Kenyan Energy Ministry said.
Discussions that also looked at project time frames and involved officials from both East African countries began this week, Joseph Njoroge, the ministry’s principal secretary, said in a phone interview from Nairobi, Kenya’s capital, on Wednesday. The negotiations follow an announcement by Kenyan President Uhuru Kenyatta on Aug. 10 that the route for the conduit had been agreed after months of debate.
“We have started working out the details together with the Ugandans,” Njoroge said. “We will also engage as many stakeholders as we can. We want this project to take off immediately.”
Tullow has found oil in both countries, with Uganda estimating finds at 6.5 billion barrels and Kenya at 600 million barrels. The planned pipeline to the Indian Ocean, which the government estimates will cost about 400 billion shillings ($3.9 billion), will allow the U.K. company to start exports from joint ventures with Africa Oil Corp. and Total SA. China’s Cnooc Ltd. is also a partner in Uganda.
Oil and gas industry development has slowed in Africa over the past year as slumping oil prices forced companies to cut costs and and trim capital budgets, according to a PricewaterhouseCoopers survey published this month. Crude prices have fallen more than 30 percent so far this year on speculation that a world supply glut will be prolonged. Brent for October settlement gained as much as 4.6 percent to $45.05 a barrel on the London-based ICE Futures Europe exchange on Thursday.
While oil was discovered in Uganda in 2006 and four years later in Kenya, both are still in the planning stages of commercial development.
The proposed pipeline will run for about 1,500 kilometers (930 miles) from Uganda’s Hoima district through Lokichar in northern Kenya and on to the coastal town of Lamu. The facility will be developed jointly, while each country will be responsible for raising financing for the project costs within their borders, Njoroge said.
Raising financing for the pipeline may be a “complex process, but not entirely impossible,” John Ngumi, chairman of the state-owned Kenya Pipeline Co., said in a phone interview from Nairobi.
“It’s never easy,” he said. “Infrastructure financing is done all over the world. Raising financing for crude oil pipelines is done all around. I know what options exists to raise financing, its doable.”
Ngumi cited examples of a $350-million financing facility from banks including CFC Stanbic Holdings Ltd. and Citigroup Inc. used for the construction of a 450-kilometer pipeline from the port city of Mombasa to Nairobi, and Kenya’s debut $2 billion Eurobond in 2014.
“No financing in today’s world is impossible if all elements have come together,” Ngumi said.