Libya's Tamoil is offered more Equity by Uganda

East African (Nairobi)

3 July 2007
Posted to the web 3 July 2007

Daniel Kalinaki
Nairobi

The Ugandan government has secretly been planning to cede more control of the Eldoret-Kampala Oil Pipeline it is building in partnership with the Kenyan government, to the project developers, Tamoil of Libya, The EastAfrican can now reveal.

Under the original plan, the private developer was expected to take up 51 per cent of the project while the two governments, splitting the 49 per cent, would take 24.5 per cent each. Tamoil signed a preliminary agreement with the governments in late January in Kampala allowing it to put the necessary facilities in place over six months before a final agreement is signed.

The project was expected to cost $78.2 million, 70 per cent of which was to be debt by all three parties, with the rest coming in the form of equity contributions. This meant that each of the two governments would have to pay about $5.8 million in equity contributions.

However, The EastAfrican has now learnt that the Permanent Secretary in Uganda's Energy Ministry, Fredrick Kabagambe-Kaliisa, wrote to Tamoil in April and revealed that Uganda was not in a position to finance its equity contribution to the project. In the same letter, the Ugandan official invited Tamoil to take up a greater percentage of the equity in the project.

Under the terms of the project - which Uganda and Kenya have worked on since 1994 - Kenya would also be forced to cede more equity to Tamoil if Uganda's offer were taken up, as both governments must have an equal share in the project.

More significantly, Uganda, a landlocked country that imports virtually all its petroleum products through Kenya, would have handed over complete control of a strategic national asset to a private firm.

It is not clear what Uganda's official position is on the strategic value and control of the pipeline. Asked to comment about the letter offering to cede more equity to Tamoil, Energy Minister Daudi Migereko denied the contents and spirit of his permanent secretary's letter.

"It is not true," Mr Migereko told The EastAfrican. "The government is taking up its equity; we are only discussing the terms under which to do so. We are talking about having a carried interest in the negotiations? We are going to have a stake in that project."

Ben Twodo, a commissioner in the ministry who was closely involved in the negotiations over the project, said he did not know of any transfer of equity but added that any such transfer would be within the confines of the agreement.

"Our language was never that the private developer would take 50 per cent," he told The EastAfrican. "Our language was that the private developer would take at least 51 per cent, meaning it could be more; and then we said that the two governments would take up to 49 per cent to be shared equally."

Mr Twodo said they had not yet reached the completion of the first phase of the project, only after which would the issue of transferring more equity arise. He said the transfer of equity would come up depending on the results of the development phase of the project.

"The phase we are doing right now is project development. Once that phase is complete, it culminates in the making of the final investment decision when we will decide on everything, including whether to transfer more equity to the private developer. That [resolution] will be embedded in the final investment decision," he said.

Mr Twodo said the final investment decision (the point at which Tamoil can be given the go-ahead to procure items for construction as well as contract companies that will do the engineering and construction work) would be made in August, but the actual construction will start either in late October or early November.

A government official who spoke to The EastAfrican over the matter on condition of anonymity said the reason given for the move was lack of money to pay for the equity.

"They say that there is no money to pay for the equity," the official said, "which is strange; how can a government that can give almost $20 million to a textile venture fail to raise $6 million for a strategic national project?" The Ugandan government lost an estimated $20 million after the collapse of Tri-Star Apparel, a textile firm propped up, unsuccessfully, by government loans, grants and guarantees, to produce garments for export to the United States under the Africa Growth and Opportunity Act (Agoa).

Finance Ministry officials denied any knowledge of the question of Uganda's inability to pay for its equity in the project. "I have no idea," Deputy Secretary to the Treasury Keith Muhakanizi told The EastAfrican. "I have not been involved at all."

This is not the first time the question of Uganda's equity participation in the project has come to the fore. The EastAfrican, quoting Junior Energy Minister Simon D'Ujanga, had reported in January this year that Uganda was considering pulling out of the equity contribution to the project

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