The Ugandan government is considering plans to building an oil pipeline to Dar es Salaam, on the Tanzanian coast, after plans for a similar pipeline to Mombasa, in Kenya, have come to a halt. Since early 2008, two London-listed oil companies, Tullow Oil and Heritage Oil, have made sizeable discoveries in Uganda's prosperous Lake Albert region, which the government now estimates to hold recoverable reserves of up to 2 billion barrels. Mindful of the recent spat of discoveries, the Ugandan authorities have been considering different options for commercialising the Lake Albert reserves.
For some time now Kampala has been in talks with the Kenyan government over the possibility of extending and upgrading the Mombasa-Eldoret pipeline, to the capital city, and enabling it to reverse the flow from Kampala to Mombasa. Libya's Tamoil, which has been contracted to develop the Kampala-Eldoret link, has designed the project to enable flows going in both directions. At the planned capacity of only 24,000 barrels per day (bpd), the pipeline is unlikely to match the potential of the Lake Albert Basin, though the government is keen to refine oil domestically and supply oil products to the local market and export the remaining volumes to neighbouring countries. It plans to do so via road and railway, utilising the Mombasa-Kampala pipeline in reverse flow.
The Eldoret-Kampala pipeline, which is supposed to be built under a public-private partnership (PPP) between Tamoil and both the Ugandan and Kenyan governments, is primarily aimed at securing Uganda's energy supply. Secondly, it is designed to reduce the road damage done by fuel-carrying trucks. Uganda and Kenya signed a memorandum of understanding on the pipeline's construction fourteen years ago, back in 1995. The project however, has since been dogged by setbacks owing to financial difficulties, contract irregularities and diplomatic tensions. Tamoil announced as recently as June that the ground work on the pipeline was now expected to begin in July 2009, with completion scheduled for 2011. Despite being two years beyond commissioning it seems that to date, construction work at the pipeline is still yet to begin.
The lack of an agreement has now pushed Uganda to consider building a pipeline to Tanzania instead. However, two other options have been proposed. Tullow and Heritage favour the construction of a new oil export pipeline to Mombasa and have been holding talks with financial investors over funding options. Italy's oil giant Eni has proposed a third option, which could be satisfactory to both the oil companies and the government. Eni is looking into the feasibility of constructing a 100,000 bpd refinery in Uganda which would be connected to a new export pipeline to Mombasa. This would allow the government to maximise its revenues by keeping all of the refining operations domestically, while letting producers sell most of Lake Albert's oil internationally at market prices.