Oil pipeline route should not spoil the EAC party

The expected oil windfall for Uganda and Kenya has been attracting some attention lately, particularly on the route the pipeline should take if either country is to reap most from it. Some observers have been reading some sort of power play in the offing to realign regional hegemony, with Uganda holding all the cards as the decider of which route the pipeline should pass, whether through Kenya or Tanzania to the East African coast.

The expected oil windfall for Uganda and Kenya has been attracting some attention lately, particularly on the route the pipeline should take if either country is to reap most from it.

Some observers have been reading some sort of power play in the offing to realign regional hegemony, with Uganda holding all the cards as the decider of which route the pipeline should pass, whether through Kenya or Tanzania to the East African coast.

 

We expect to know the route by this weekend during the Northern Corridor Heads of State Summit taking place in Kampala, Uganda.

 

But by holding all the cards, including where the oil refinery will be located, one argument goes that it will allow Uganda geostrategic leverage as a dominant regional player.

 

One may not rule out any hegemonic ambitions from whichever quarter in the region. But there’s an economic argument that could work for the good of all, whatever pans out in the fullness of time.

Uganda argues that the implied costs in the Kenya route are prohibitive and likely to significantly push up the overall cost of constructing the pipeline through the country to Lamu.

A draft report on Uganda’s findings leaked to the media early this week suggests that “The Kabaale-Tanga route is the only option to secure first oil export by mid 2020, with pipeline availability of 99 per cent.”

The report is also shows that on the Kabaale-Lamu route, the first oil export could only happen in mid-2022, with the pipeline availability at 80 per cent.

If the report findings should be accurate – or true – the die is cast. This is to say that, hegemonic ambitions or not, economic interests will dictate the most reasonable thing to do.

The East African Community (EAC) may decidedly be working towards integration, but as things stand, national interests prevail and will hold sway in the foreseeable future. This is the reality.

Uganda may decide to build its oil refinery in Hoima from where – with the greatly reduced cost of transportation if not much else – there will be a ready and willing market in Rwanda, Burundi, and eastern Democratic Republic of the Congo. And, if the pipeline will pass through Tanzania, why not sell them the, presumably, cheaper petrol as well?

Perhaps it should have been better for Kenya with the much economic stake it had placed on it. But it can always sort itself out and join hands with South Sudan and Ethiopia and manage just fine, including under the Lamu Port Southern Sudan-Ethiopia Transport (LAPSSET) Corridor project, if it should still be on course.

The way I look at it, “you win some you lose some”. There should be no hullabaloo about what Uganda decides on the crude oil pipeline.

Let us also not be too consumed with the oil reserves in the region. We should take a reality check and look around us in Africa at what is happening to those who have been before us with the good fortune (or misfortune) to have reaped from their crude oil’s economic dividend.

From US$115 in 2014, a barrel of Brent crude (the international pricing benchmark) now fetches below US$40.

When the bottom fell out of the oil market last year, African oil exporters are now being forced to grapple with depreciating national currencies, mounting inflation, and deep cuts in government spending.

Nigeria, for instance, whose oil accounts for 70 per cent of government revenue is in an economic tailspin. The government has been forced to slash spending and seek US$3.5 billion in emergency loans from the World Bank and African Development Bank.

Likewise, Angola, which has been forced to slash its budget by 25 per cent amidst loss of thousands of jobs, rising fuel and food costs, and the recent yellow fever outbreak that threatens to claw back what has been gained.

Other major oil producers on the continent, including Gabon, Equatorial Guinea, Sudan, and South Sudan, are faring no better.

Still, there is hope that at some point in the near future oil prices will improve, perhaps before Uganda and Kenya viably start producing their own by early 2020s.

In the meantime, the EAC countries should continue to move ahead together with their economies projected to grow at 5 per cent next year.

Oil issues, especially with the current petrol prices at the pump, should not trouble us too much for now.

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