The race to become the first East African oil producer is intensifying with every passing day. While Kenya seems to be on the lead in this race, Uganda is quickly catching up.

Though Uganda may soon produce oil, the journey is not smooth. The government of Uganda-earlier this year- was involved in a court tussle with one of the major explorers, Tullow Oil. This oil company had taken the government of Uganda to court of over tax exemption but the court ruled against them.

In response to the ruling, Tullow oil pointed, “The Tax Appeals Tribunal (TAT) has ruled against Tullow on the key issue of the express tax exemption contained in the Production Sharing Agreement for Exploration Area 2. The TAT has calculated Tullow’s capital gains tax (CGT) liability for the farm-downs, including certain reliefs, to be USD 407 million, of which USD142 million Tullow has already paid. Tullow believes that the amount already paid exceeds its liabilities in relation to CGT on exploration area 1 and 3A (EA1 & EA 3A).”

There has also been undue pressure from the government of Uganda on oil companies. Players in the oil sector also say the government of Uganda lacks of transparency in oil matters. A survey conducted in 2012 showed that 50% of the Ugandans were not confident that the oil revenues would have an impact on their lives. This shows that even the citizenry of Uganda do not have faith in how their government is handling oil. Controversy has also risen in the compensation programme after the government of Uganda failed to allocate compensation money in their 2014/2015 budget. This move puts in jeopardy the compensation programme.

Uganda discovered oil in 2006, just like in Kenya; the oil is for all the citizens under the government administration. This is stated under the constitution of Uganda as follows; “the entire property in, and the control of, all minerals and petroleum in, on or under, any land or waters in Uganda are vested in the Government on behalf of the Republic of Uganda.”

Uganda’s oil reserves are estimated at 2 to 3.5 million barrels with 1 million barrels ready for extraction. While Kenya seeks to have its oil in production up by 2016, Uganda seeks to have its oil production commence in 2018. Plans are underway to have the construction of a refinery start by the end of 2014 in Uganda. Kenya has already invested KES 6.38 billion into the refinery acquiring 3% stake of the 60,000 barrels per day refinery. The refinery will be located in Hoima close to the country’s largest oil fields in the Kaiso-Tonya area.

Since Uganda is landlocked, the Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor project will provide a pipeline for the oil to the Kenyan coast. After this, the oil finds its way to any other destination for consumption. As of April 2014, environmental impact studies on the Kenya-Uganda pipeline had begun on the Kenyan side. The proposed route covers approximately 850 kilometres inside Kenya, with most of the route, underground. The studies on the Uganda side are yet to begin.

Due to the waxy nature of the oil discovered in both countries, it remains solid below 40 °C. This will require the pipeline to stay heated.  The pipeline will also utilize pump stations along the way to keep up the oil pressure. If and when completed as proposed, it will be the longest heated crude oil pipeline the world.

 

 

 

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