Libyan interests in East Africa to shrink further with Kenya’s demand for new deal over pipeline

Libyan interests in East Africa continue to shrink as it emerges that Kenya will be pressing for complete disengagement with Tamoil East Africa Ltd at a crucial meeting being convened in Kampala this week to review progress on the proposed Eldoret-Kampala pipeline.

Top Ministry of Energy officials in Nairobi told The EastAfrican that Kenya wants the multimillion-dollar deal — the largest surviving project by a Libyan company in East Africa — terminated and the project floated afresh to attract new partners. Launched in 2007, the project has suffered crippling delays, compounded by the insurrection that precipitated last year’s toppling of long-ruling dictator Colonel Muammar Gaddafi.

Lately, Libya had launched a major diplomatic offensive, hoping to persuade authorities in Nairobi and Kampala to revive the deal, claiming that Tamoil had already spent $15 million.

It is understood that the joint co-ordinating committee that has been overseeing the contract on behalf of the two governments is not persuaded by the claim by the Libyans that Tamoil has spent such a large amount of money on the project.

Doubts have also emerged as to whether Tamoil — which is said to have suffered the loss of billions of dollars in assets due to persistent bombing by Nato forces during the insurrection — still has the wherewithal to undertake this critical project, especially after Uganda demanded that the scope of the project be altered to cater for an additional line to pump future refined Ugandan oil to export markets through Kenya.

So far, the project has not moved beyond even the first stages following the signing of the agreement in January 2007.

It was projected that Libyans would achieve financial closure in July 2007.

However, financial closure was not achieved; the time lines have had to be extended several times, with the project stagnating at the heads of agreement level for months.

Still, a great deal of preparatory work was done, including the signing of a formal agreement.

Environment assessment

An Environmental Impact Assessment was also done and licences from NEMA Kenya and NEMA Uganda issued in 2008.

The NEMA Kenya licence, which was valid for a 24-month period, expired on July 6, 2010.

In May, Tamoil, submitted designs for a 10-inch diameter pipeline that were approved by the JCC in June 2008.

When Uganda, following discovery of significant quantities of oil and having decided to build an inland refinery, insisted on a reverse flow pipeline, Tamoil presented other designs recommending construction of a 12-inch diameter reverse flow pipeline.

By the beginning of this year, the way leave acquisition process, which was being undertaken by the governments in collaboration with Tamoil, had been substantially completed. 

In Kenya, the Ministry of Lands released the compensation schedules for parcels of land along the way leave of the pipeline.

 

The submitted schedule contained about 2,107 formally and informally subdivided plots with an estimated total compensation cost of Ksh520 million ($6.27 million). The compensation details for 191 affected plots were, however, found to be missing from the report and the minister was directed to complete the work.

Under the arrangement, the Kenya and Uganda governments were to acquire the way leave and other land rights as part of their equity injection in the joint venture company.

Payments to land owners whose compensation schedules have been released have not been done to date. 

At a meeting of the JCC in October 2010, it was agreed that the Libyans provide finance to pay off landowners.

The JCC also decided that the two governments would postpone any equity injection until after the Libyans had produced the money to fund land acquisition. The shareholding by the two governments would be equivalent to the equity injection that would have been made at commissioning of the project up to 12.5 per cent for each government as per the heads of agreement. 

As at now, acquisition of land for permanent installations such as block valves station and pumping stations is still outstanding.

The Kenya-Uganda pipeline extension project is jointly sponsored by the government of Kenya, through the Ministry of Energy and the government of Uganda through the Ministry of Energy and Mineral Development. The joint co-ordinating commission was set up through a memorandum of understanding between the two governments in 1995 initially to oversee the feasibility study. 

But the mandate of the JCC was expanded in October 2000 to allow the commission to oversee the implementation of the project. 

A feasibility study was done in 1999 by Penspen Ltd, and a complementary study was done two years later by Nexant Ltd. Both studies established that the uni-directional pipeline from Eldoret to Kampala was economically and financially viable.

The JCC considered and adopted the final report by Nexant and the two governments approved the construction of the pipeline as a public-private partnership. 

Following international competitive bidding, the Libyan company was selected as the private partner, paving the way for the parties to sign the heads of agreement in January 2007.

(Source: The East African)

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